Cafeteria Plan Options for 2024 — Section 125 POP, HSA, FSA, DCAP
Since 1978, the Section 125 Cafeteria Plan has helped employers and employees eliminate income and payroll taxes on health insurance premiums and out-of-pocket medical expenses. All the IRS Code requires is that the appropriate written plan document be in place before tax savings can be taken. For employers wanting to set up a plan, or whose plan document is more than 5 years old, here is a quick review of Section 125 Cafeteria Plan Options for 2024.
Section 125 Cafeteria Plan Options for 2024
Section 125 Premium-Only Plan (POP)
It all starts with a basic POP that allows employees to elect to pay group health insurance and supplemental insurance premiums with pre-tax dollars. This arrangement results in savings of up to 40% for employees (income and payroll tax combined). The employer also saves on average 8% to 10% by eliminating payroll and other taxes (workers’ compensation, for example) on the amount of premiums paid by employees. Click here for more information.
FSA/HSA News: CARES Act repeals “Medicine Cabinet Tax” on OTC reimbursements and expands items eligible for coverage
The Coronavirus Aid, Relief, and Economic Security (CARES) act removes the requirement for a physician’s prescription for many over-the-counter items eligible for Health FSA, HSA, and HRA coverage, while expanding the list of eligible items and providing safe harbor to HDHPs associated with an HSA to cover pre-deductible telehealth and other remote care services. Read, Coronavirus “CARES Act” restores OTC coverage for FSAs, HRAs, HSAs to learn more.
Health Savings Account (HSA)
HSA assets are projected to have grown by 20% over the previous year. The reason for their popularity is the multi-benefit approach the accounts offer. First, an HSA is a flex account vehicle to help with today’s out-of-pocket medical expenses like deductibles, co-pays, and prescriptions. An HSA is designed to roll over unused funds in an interest-bearing fund account that is owned by the employee. At retirement, funds can be withdrawn for any reason, subject to regular income tax. More . . .
Health Flexible Spending Arrangement (FSA)
The Health FSA is the traditional flex account that allows contributions of up to $3,200 per employee (2024), on a pre-tax basis. For the employee, that’s like getting a 30% discount or health care products and services such as deductibles, co-pays, prescriptions, and many over-the-counter medical products without a prescription. Employers save payroll taxes on employee contributions, too. More . . .
Dependent Care Assistance Program (DCAP FSA)
Employers with even one employee paying for daycare expenses should sponsor a DCAP. Employer payroll tax savings alone on one employee making the maximum contribution of $5,000 per year amount to $382.50. That’s an ROI of just under 300% over the one-time plan document price of $129. More . . .
Parking & Transit Plan
With a Section 132 Transportation plan benefit, employees deposit up to $315 per month for parking expenses and $315 per month for transit expenses, on a pre-tax basis. Employees save income and payroll taxes with the pre-tax salary deduction and employers eliminate payroll tax on employee contributions. For employees who ride a bicycle to work, an employer may offer a bicycle benefit of up to $20 per month. More . . .
Important: GOP tax reform impact on Section 132 commuter benefits: Amounts given by the employer to the employee to cover transportation costs are no longer deductible for the employer. However, employers can still reduce annual payroll taxes by as much as $468 or more per participating employee. More . . .
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