What Is Cafe 125 HSA on My W2?

If you've spotted 'Cafe 125 HSA' on your W2 form, you might be wondering what it means. Cafe 125 refers to a Section 125 cafeteria plan that includes a Health Savings Account (HSA). This is a tax-advantaged benefit that allows you to set aside pre-tax dollars for qualified medical expenses.

When it appears on your W2, it means that you have contributed to your HSA through your employer's cafeteria plan, and those contributions have been excluded from your taxable income.

Here are some key points to help you understand Cafe 125 HSA on your W2:

• Section 125 Cafeteria Plan: A benefit plan that enables employees to choose between receiving cash or select a benefit package without being taxed.
• Health Savings Account (HSA): A savings account that allows you to save pre-tax money for medical expenses.
• Tax Benefits: Contributions to your HSA through a cafeteria plan are not subject to federal income tax, Social Security tax, or Medicare tax.
• Qualified Medical Expenses: You can use the funds in your HSA to pay for a wide range of medical expenses, including deductibles, co-pays, prescriptions, and certain over-the-counter items.

Finding 'Cafe 125 HSA' on your W2 can raise some questions, but it's simply a sign that you are taking advantage of a valuable tax benefit connected to your Health Savings Account (HSA). This section refers to a cafeteria plan set up under Section 125 of the IRS Code that permits you to pay for your medical expenses with pre-tax dollars.