What Are Cafeteria 125 Deductions and How Do They Work?
Most small business owners hear the words "IRS tax code" and immediately tune out. I get it. Tax law isn't exactly exciting reading. But here's the thing — IRS tax code section 125 is one of the most practical, money-saving tools an employer can use, and a lot of companies have no idea it exists, or worse, they know it exists and just haven't bothered to set it up. That's a real cost. We're talking about thousands of dollars a year in unnecessary taxes, both for the employer and for the employees. Cafeteria 125 deductions aren't some obscure loophole either. This is a legitimate, IRS-sanctioned way to structure employee benefits so that contributions come out of pre-tax wages. Less taxable income means less money going to the government. It's straightforward once you understand how the structure works, and that's exactly what this post is going to walk you through. What Is a Section 125 Cafeteria Plan, Actually? The name is a little misleading...