Solved: Box 14 on my w2 shows SEC 125 What is this?

The amount listed next to the Cafeteria 125 entry represents the total pre-tax contributions you made to your Cafeteria 125 plan during the tax year. This amount includes all eligible benefits you chose to pay for with pre-tax dollars, such as health insurance premiums, FSA contributions, and HSA contributions (if applicable). To set up a section 125 benefits plan, employers have to draft a document that outlines the benefits offered, contribution limits, participation rules and other information required by the IRS.

Health

• The content on Dumblittleman is for informational and educational purposes only and should not be construed as professional financial advice.
• Understanding these provisions helps employees fully utilize their healthcare FSA benefits while avoiding forfeitures.
• Take note of these options because it influences both your take-home pay and the taxes you owe.
• In the context of Section 125, “pre-tax” means that a deduction is exempt from Federal Income Tax Withholding, Social Security and Medicare Taxes.
• These benefits can include medical insurance, life insurance, adoption assistance, assistance with care for dependent elderly relatives, extra paid vacation days and similar.

This reduction lowers federal income tax liability and decreases Social Security and Medicare taxes. Employers also benefit by saving on payroll taxes for these contributions. Employees should review their pay stubs and W-2 forms to verify that premium contributions are accurately reflected and understand the resulting tax implications.

Common Questions About Cafe 125 and Section 125 Deductions

For example, consider someone with a salary of $60,000 who contributes $4,000 toward health insurance premiums and $1,500 to an FSA. Not only do they benefit from having a lower taxable income, but they also pay less in Social Security and Medicare taxes, further increasing their savings. If you find a discrepancy on Form W-2, you should contact your employer immediately to have it corrected.

Just like charitable donations need to be made to qualified organizations, so do you have limitations within cafeteria plan rules in order to get tax exemptions. As mentioned before, reimbursement for continuing education does not qualify as well as scholarships. In addition, employer-covered meals will not be exempt under the cafeteria plan.

On your W-2 form, you’ll typically find the Cafeteria 125 information in Box 14, labeled “Other.” This box is used for additional information that doesn’t fit into the standard boxes on the form. You may see an entry labeled “Caf 125” or “Section 125” followed by a dollar amount. Now that we understand Cafeteria 125 plans, let’s explore how they are represented on your W-2 form. Employers can put just about anything in box 14; it’s a catch-all for items that don’t have their own dedicated box on the W-2. In TurboTax, enter the description from your W-2’s box 14 on the first field in the row.

W-2 form is a crucial document your employer provides at the start of the year, summarizing your earnings and taxes withheld throughout the previous year. “Cafe 125” within this form denotes a Section 125 cafeteria plan, offering you a range of benefits as an employee. On a W-2 tax form, “Cafe 125” refers to a section that deals with certain benefits offered to you by your employer. Specifically, it encompasses what’s known as a Section 125 cafeteria plan.

Note that Archer Medical Savings Accounts (MSAs) are not eligible for Cafe 125 plans. These MSAs were created to help the self-employed and small businesses with medical care costs. ECG Pte Ltd () is an independent publisher and comparison service, not an investment or financial advisor. Its articles, interactive tools, and other content are provided to you for free, as self-help tools and for informational purposes only. Dumblittleman does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances.

Section 125 Plan Defined

All qualifying cafeteria plan benefits are exempt from income taxes, but not all of them are exempt from payroll taxes – the Social Security tax and the Medicare tax. First, group term-life insurance coverage in excess of ​$50,000​ is subject to payroll taxes. In addition, all adoption assistance benefits are also subject to payroll taxes. With pre-tax benefits, you deduct the employee’s contribution before withholding taxes, reducing their taxable income.

Common Mistakes to Avoid with Cafeteria 125 Plans

Once an employer allows employees to make pre-tax contributions, the Section 125 non-discrimination testing rules apply instead of the HSA comparability rules. In most cases, the information that your employer lists in Box 14 of your W-2 does not affect your income tax return. In fact, for many Box 14 entries, the IRS does not even provide a place for it to get reported on your return forms.

Self-Employed Tax Calculator

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Your box 1 W2 wages are already reduced by the amount you pay towards health insurance. The content on Dumblittleman is for informational and educational purposes only and should not be construed as professional financial advice. References to products, offers, and rates from third party sites often change. While we do our best to keep these updated, numbers stated on this site may differ from actual numbers. We may have financial relationships with some of the companies mentioned on this website. Among other things, we may receive free products, services, and/or monetary compensation in exchange for featured placement of sponsored products or services.

• Section 1202 can benefit start-ups and entrepreneurs by allowing owners to sell small business stock tax free.
• The IRS sets annual limits on these contributions, and exceeding these limits can result in tax consequences.
• In addition to being tax advantageous, cafeteria plans can help employers attract and retain talent.

Additional Payroll Tax Exemptions

When you get your W-2 tax form, you might notice a section labeled “Cafe 125” and wonder what it means. It’s easy to feel confused by these unfamiliar terms, but don’t worry – we’re here to simplify it for you! In this guide, we’ll explain what Cafe 125 is, how it affects your taxable income, and what it means for your tax return.

This section on the W-2 delineates the amount of pre-tax deductions taken from your paychecks throughout the year to fund these benefits. Make sure you understand this section because it impacts your taxable income and, therefore, your tax liability when filing taxes. When you see “Cafe 125” on your W-2, it signifies that your employer has a cafeteria plan in place.

If there’s an error with the Cafe 125 deductions on your W-2, it can lead to discrepancies in your tax return. For instance, if your health insurance premiums were not properly deducted before taxes, your Box 1 wages would appear higher than they should be, which could result in overpaying taxes. When you get your W-2, Cafe 125 shows how much you’ve contributed to your cafeteria plan. It’s usually in Box 14, under “Other,” and tells you how much of your income escaped taxation.

For comprehensive tax, legal or financial advice, always contact a qualified professional in your area. S’witty Kiwi assumes no liability for actions taken in reliance upon the information contained herein. Your W-2 reflects these deductions and benefits at the end of the tax year, providing you with a summary of what you’ve earned and the taxes withheld. Take note of the connection between benefit selection timing and your W-2 as it helps you make informed choices that shape your tax situation for the upcoming cafe 125 w2 year. Generally, you cannot change your Cafeteria 125 elections based solely on seeing the amount on your W-2.