Are Section 125 Contributions Subject to Social Security and Medicare Taxes?
Understanding how positive benefits have interaction with payroll taxes can be puzzling. One of the maximum common questions employees and employers ask is whether or not contributions beneath a Section 125 tax plan are exempt from Social Security and Medicare taxes. Since those applications at once affect your paycheck and lengthy-time period benefits, it’s worth exploring the information. What Is a Section 125 Plan and How Does It Work? Before diving into tax guidelines, allow’s make clear what a Section 125 plan honestly is. Often known as a “cafeteria plan,” it permits employees to pay for positive certified benefits—inclusive of medical health insurance rates, bendy spending debts (FSAs), and established care help—using pre-tax dollars. This method your contributions are deducted from your gross revenue earlier than taxes are calculated. The key benefit here is phase 125 tax savings. By lowering your taxable profits, you may lessen the quantity you owe in federal earnings tax a...