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Offer a Section 125 cafeteria plan to your employees

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in Small Business Tax,Small Business Tax Deduction Strategies

How much of your budget is allocated to fringe benefits? In the past, this may have represented just a sliver, but now employee benefits frequently take a much larger piece of the pie.

Strategy: Set up a Section 125 “cafeteria plan” that provides a menu of tax-favored fringe benefits to choose from. Par­­tici­­pat­­ing employees only take advantage of those benefits they truly want, helping to keep company costs down.

Usually, contributions to a cafeteria plan are made through a salary reduction plan. The employees’ contributions are subtracted from their taxable salaries for federal income tax and employment tax purposes. In addition, the salary reduction amounts are not subject to the employer’s share of federal employment taxes.

Here’s the whole story: A cafeteria plan must be a separate written plan maintained by an employer for employees under Section 125 of the Internal Revenue Code. It gives participants the opportuni...(register to read more)

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