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Section 125 Plans are employee benefit plans. Employees contribute a portion of their income on a pre-tax basis and are reimbursed for claims they must pay out of pocket. In these types of plans, the employee deductions are not subject to Federal, State or Social Security taxes. The employer also benefits by not paying FICA, FUTA and Worker’s Compensation premiums on these participating employees. The employee deductions can be used to pay such expenses as health insurance, medical bills, and child care. There is a plan document however, there is no annual tax return that needs filed for the plan.


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