Section 125 Plan

What Does Section 125 Plan Mean?

The Section 125 Plan, also known as the Cafeteria Plan, allows employees to have funds deducted from their pre-tax income to pay for benefits such as health insurance. Regulated by the IRS, this plan helps employers reduce costs while increasing employees’ take-home pay by lowering their taxable income.

Insuranceopedia Explains Section 125 Plan

The plan is called a Cafeteria Plan because it allows employees to select from a variety of benefit options (at least two) that their pre-tax income can be used to pay for. Common choices include premiums for health insurance, dental insurance, vision care insurance, and group term life insurance. However, there are exceptions—this plan cannot be used to pay for benefits like educational assistance or medical savings accounts.