•The amount you have Medlin Payroll Software withhold as Section 125 reduces gross pay and is not taxed (with a few exceptions).

•In general, if your Section 125 Plan offers a cash option, the amount is taxable, and should be setup as an after tax deduction.

•Consult your plan provider for specifics.

To Setup Section 125 as a pre-tax item (with a few exceptions)

•Click Setup.

•As one of the “Adjustments to Income”, Select Section 125.

•On the Employee screens, you can set a fixed amount or percentage on a per employee basis.

•For dollar amounts, simply enter the amount.

•For percentages, enter the percentage as a number followed by the percent (%) sign.

•Be sure to click the Save button after setting the employee information.

To test the function of Section 125

•Open the Paycheck screen and enter enough hours so the gross pay is several hundred dollars.

•If there is an amount in the Section 125 field, change the amount to zero.

•Note the gross pay and deduction amounts.

•Enter 100.00 in the Section 125 field, and compare the gross pay and deduction amounts.

•You will see the gross pay has been reduced by 100.00, and the deductions based on the gross pay have decreased as well.

Technical Notes

•A Section 125 plan is a separate written plan maintained by an employer for employees following the specific requirements and regulations of Section 125 of the Internal Revenue Code.  It may provide participants an opportunity to receive certain benefits on a (mostly) pretax basis.

•Since the Section 125 amount is removed from gross pay, the only two reports which will show the Section 125 amounts are the Payroll Check Listing and the Employee History (with a few exceptions).

HSA

•Medlin does not offer direct support for HSA.

•If you are in a 'conforming' state (HSA reduces taxable pay in the same manner as Section 125), you can enter the HSA amount in the Section 125 field.

•The Cafeteria option calculates in the same manner as Section 125.

•The difference in the software is when using the Cafeteria option, you must manually enter the desired amount on each paycheck.

If you have any questions as to the tax withholding status of your plan, contact your plan administrator.