Section 125 Definition

A section of the Internal Revenue Code that allows an employer to offer benefits to employees on a pre-tax basis.

Section 125 Extended Definition
Also known as cafeteria plan or flexible spending plan, a Section 125 plan is a benefits program offered by employers to give employees the option to pay certain expenses from their paychecks prior to the deduction of taxes. Employers withhold a percentage of the pre-tax earnings of employees participating in the program and allocate it to selected expenses. The upper limit for the amounts withheld depends on the plan.

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Last Updated By

Jenna Hutkowski | May 01, 2023