How Does an IRS Cafeteria Plan Reduce Your Taxable Income?
If you’ve ever looked at your pay stub and wondered where some of your money went before it even hit your bank account, you’re not alone. Taxes, benefits, deductions. It’s a mess. Somewhere in that mess lives something called an IRS cafeteria plan, also known as Section 125 health plans . Sounds boring. It kind of is. But it can quietly save you real money, and that part matters. This isn’t one of those glossy “benefits overview” write-ups. This is a straight talk breakdown. No hype. No legal fluff. Just what these plans are, why employers use them, and why employees should actually care. What an IRS Cafeteria Plan Really Is? An IRS cafeteria plan is a benefit setup that lets employees pay for certain expenses with pre-tax dollars. That’s the core idea. You earn money, but before taxes are taken out, some of it goes toward approved benefits. Because the IRS doesn’t tax that portion, your taxable income drops. Less taxable income usually means less tax paid. Simple math. The reason it’s...