A Section 125 (Cafeteria) Plan provides employees the opportunity to pay medical insurance premiums, medical out-of-pocket expenses (for deductibles, coinsurance and noncovered items) and child care expenses with pre-taxed dollars.

Cafeteria plan amounts are treated as salary reduction and reduce taxable income for income tax and FICA tax purposes. Employees are reimbursed for eligible expenses as the money is spent.

Employees really appreciate this benefit. The employer also enjoys a reduction in FICA taxes.