2006-10-19 02:43:40 · 7 answers · asked by hhar20012001 1 in Business & Finance ➔ Taxes ➔ United States
Not only are contributions made to section 125 plans not included on W-2 line 1 "Federal Taxable Wages", but also on Line 3 "Social Security Wages" and Line 5 "Medicare Wages". Since the employer also pays SS and Med taxes (FICA taxes) for income given to employees, they save money when the employee pays into a 125 plan. The previous answerers are 100% correct.
Keep in mind that since your social security income is lower, you may receive less social security when you retire. If you are far from retiring, this may not be an issue. But, if you are close to retirement, you may want to choose to waive the election. Choose wisely.
Whatever you do, don't trust anyone's answer here. Do your own research...even if they claim to be a payroll administrator for the last 35 years. For all you know, they are 16 years old...or they screwed up every employees taxes for 35 years.
I've included another good link.
2006-10-19 16:28:13 · answer #1 · answered by TaxMan 5 · 1⤊ 0⤋
A business can elect to have cafeteria plan items taken before or after taxes. Example, you may have a MSA taken before taxes & disability taken after taxes. This ability to take certain things before taxes is a benefit the government gives to businesses to encourage them to provide benefits to their employees. If they take items out before figuring the tax, it will also save the employer their portion of the FICA and Medicare. That is why many employers are offering cafeteria plans now.
This is all reflected on the W--2 where it says "wages" and then another line for "social security wages".
2006-10-19 10:33:21 · answer #2 · answered by T H 4 · 3⤊ 0⤋
Somebody is going to have to amend fifteen years' worth of payroll returns. See this link (scroll down to Table 2.1) - straight from the horse's mouth. If the IRS says its exempt, you can be assured that it is.
2006-10-19 14:22:21 · answer #3 · answered by skip 6 · 1⤊ 0⤋
Nope, nothing reduces FICA and Medicare. We all get to pay the full percentage and only if very, very lucky will we ever get it back after the baby-boomers suck it dry.
2006-10-19 09:47:15 · answer #4 · answered by Gem 7 · 0⤊ 4⤋
Uncle needs the money. You will pay FICA AND Medicare on gross.
2006-10-19 10:15:14 · answer #5 · answered by acmeraven 7 · 0⤊ 4⤋
TH is correct, and the rest of you need to go back to school.
2006-10-19 11:53:06 · answer #6 · answered by jinenglish68 5 · 3⤊ 0⤋
No, those are still based on gross.
2006-10-19 09:46:25 · answer #7 · answered by Carp 5 · 0⤊ 4⤋