What does CAF125 shown in Box 14 mean and is it taxable?


What does CAF125 shown in Box 14 mean and is it taxable?

Since our payroll services don’t automatically reflect employer-sponsored health insurance on W-2s, I suggest performing the manual process. Yes, contributions to section 125 cafeteria plans are not deductible in New Jersey. Since these amounts were removed from your federal income, they have to be added back to New Jersey income. There may also be additional savings on withholding taxes in some states. A robust employee benefits plan is a great way to help you attract and retain talent. When selecting benefit offerings, it’s important to provide options that help plan participants save money while strengthening their loyalty to your business.

  1. You’ve already saved $240 on taxes ($1,000 x 24%) if you’re in the 24% marginal tax bracket.
  2. Yes, contributions to section 125 cafeteria plans are not deductible in New Jersey.
  3. While you can easily interpret form fields like your name and Social Security number, there are other box codes that are more involved ways to report your taxable wages.
  4. The premiums can be for employer-sponsored insurance plans or individual health policies.
  5. All features, services, support, prices, offers, terms and conditions are subject to change without notice.

Only specific types of coverage must be reported; others aren’t required or are optional. For example, your employer must report the cost of major medical, but your contributions to a health flexible spending account aren’t reportable. The data in Box 12 is for informational purposes only, so employees know the cost of their health coverage.

Employee Benefits

There is no maximum Medicare wage base for the Medicare portion of FICA. You can create a payroll item from your employee’s profile to post the insurance accordingly. Ensure that the information and the tax tracking type are accurately entered and aligned with the guidelines provided by the IRS for Box 14 entries. They are called cafeteria plans because employees are given a list of benefits to choose from, similar to a cafeteria-style menu.

What Is a Section 125 (or Cafeteria) Plan?

This money is taken out of the individual’s gross pay and can be used for items such as group health insurance premiums, qualified out-of-pocket medical expenses, and daycare for eligible dependents. Employees who are enrolled in a Section 125 plan can set aside insurance premiums and other funds pretax, which can then go toward certain qualified medical and childcare expenses. Depending on where they live, participating employees can save from 20% to 40% in combined federal, state, and local taxes on a variety of items that they typically already purchase with out-of-pocket post-tax funds. Employers can save an additional 7.65% on their share of payroll taxes. As with food service, a cafeteria plan allows employees to pick benefits from a menu of offerings. Any costs beyond the maximum your company will pay then become the responsibility of the employees, paid for via payroll deductions throughout the year.

If more than 6.2% of that amount was withheld, OPA will issue you a refund in February. If you do not receive a refund that is owed to you, contact your agency’s Payroll Office. The W-2 form is a United States federal wage and tax statement that an employer must give to each employee and also send to the Social Security Administration (SSA) every year. Your W-2 Wage and Tax Statement itemizes your total annual wages and the amount of taxes withheld from your paycheck. I would feel the same thing if this happens to me after seeking assistance. Allow me to chime in and help you manually report your health insurance premiums.

The above listed taxable fringe benefits are shown in Box 14. The Social Security Administration uses your SSN to record your earnings for future social security and Medicare benefits. I’m just a post away if you need additional assistance with your W2 forms. Also, an item with tax tracking type set to Other will affect Box 1, regardless of its tax settings. With TurboTax Live Full Service, a local expert matched to your unique situation will do your taxes for you start to finish. Or, get unlimited help and advice from tax experts while you do your taxes with TurboTax Live Assisted.

The full-blown plan is a consumer-driven healthcare (CDHC) plan. It involves a credit system that the employee can use on a discretionary basis for qualified expenses. Employees can then supplement the CDHC with their own money and use it to buy additional benefits or coverage. Numerous employers across the U.S. set up and use various types of employee benefits plans allowed by the Internal Revenue Service (IRS). One of these plans, the Section 125 (or cafeteria) plan, has been in existence since 1978. Most employees pay 6.2% of covered wages, up to the maximum social security wage base which is adjusted each year.

The Pretax Health Insurance Deduction for Employees

Income allotted to cafeteria plans is taken directly from an employee’s paycheck before taxes are taken out. These pre-tax contributions can save the employee hundreds—possibly even thousands—of dollars in income taxes and Social Security and Medicare taxes over the course of a year. Employees also have the advantage of choosing which programs to enroll in and which to decline to get the specific benefits that are most important to them. Offered solely in conjunction with a group medical plan, an FSA benefit can help employees budget for predictable out-of-pocket medical expenses, such as co-pays, routine prescriptions, or dental care. Consider how much an employee’s household might spend in a year on eligible expenses such as maintenance medications (medication taken daily or weekly), yearly eye care expenses, and routine or special-need dental work.

Employees who pay for the cost of caring for a child under the age of 13 or an adult dependent may contribute pre-tax funds to a dependent care assistance program (DCAP). This plan allows workers to pay for up to $5,000 of eligible dependent care expenses with pre-tax dollars, or $2,500 for those with a married filing separately tax status. Covered expenses may include certain adult or child daycare, summer camp, or the cost of an in-home caregiver such as a nanny or au pair. Often, a third-party administrator can be the easiest route to help you set up a new employee benefits plan and manage day-to-day administration.

Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning. You have clicked a link to a site outside of the ProConnect Community. By clicking “Continue”, you will leave the Community and be taken to that site instead. I don’t do NYS returns, but I would be really surprised if they made you add it back. You have clicked a link to a site outside of the TurboTax Community.

This may sound like it has something to do with where you go on your lunch break, but there is a more reasonable explanation. “Cafe 125” stands for IRS regulation code section 125 regarding tax-free “cafeteria” employee benefit plans. Grace Ferguson has been writing professionally since 2009.

Employees can choose to deduct amounts from their gross income to contribute to a section 125 plan on a pre-tax basis. Both employee participants and employer sponsors sec125 box 14 of section 125 plans receive certain tax exemptions related to employee pre-tax contributions. Employee contributions are not subject to federal income tax.

And if you want to file your own taxes, you can still feel confident you’ll do them right with TurboTax as we guide you step by step. No matter which way you file, we guarantee 100% accuracy and your maximum refund. To help you understand your Form W-2, we’ve outlined each of the W-2 boxes and the corresponding W-2 codes below. A box 14 with section 125 information will not generate any specific entries in a NJ state return. The other boxes on the W2 have already been adjusted and will automatically flow to your NJ state return. Overall, these drawbacks may not be as problematic as overpaying for other services.

These are the total wages paid that are subject to social security. Then, use that item to accurately post the amounts to your W2 form when running payroll. You can make adjustments to your prior payroll if necessary. Leave a reply below if you have any other payroll forms concerns. The first thing you need to know should be the amount you need to include in the form.

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