What Does Less Other Cafe 125 Mean?

Many individuals find pay stub deductions confusing. One such phrase that might appear is “Less Other Cafe 125.” This deduction relates to specific employer-elected benefits, impacting both gross and net pay. Understanding this term clarifies how certain benefits are funded and their effect on your financial situation. This article explains “Less Other Cafe 125” and its implications.

What Section 125 Plans Are

A Section 125 Plan, known as a “Cafeteria Plan,” is a benefit plan offered by employers. It allows employees to choose between taxable cash compensation or qualified non-taxable benefits. The primary purpose is to enable employees to pay for specific benefits with pre-tax dollars, reducing their taxable income. This provides a selection of benefits, similar to how one might choose items from a cafeteria.

These plans are governed by Section 125 of the Internal Revenue Code (IRC), which sets the rules for their operation. Common benefits offered include health insurance premiums (medical, dental, and vision), Flexible Spending Accounts (FSAs), and Health Savings Accounts (HSAs). Other benefits can include accident and disability coverage, dependent care assistance, and group-term life insurance.

Employees elect to participate, choosing which benefits to fund with pre-tax deductions from their gross pay. Funds allocated to these benefits are not considered wages for federal income tax purposes. This arrangement benefits both employees and employers by reducing tax liabilities for both parties.

Decoding “Less Other”

The phrase “Less Other Cafe 125” on a pay stub refers to a deduction made under a Section 125 Cafeteria Plan. The term “Less” indicates an amount subtracted from your gross earnings for that pay period, a standard payroll notation for a reduction.

The word “Other” serves as a catch-all category for various pre-tax benefits elected through the Section 125 plan. Instead of itemizing each specific benefit (like health, dental, and vision premiums), payroll providers or employers may group multiple pre-tax deductions under “Other” to simplify the pay stub. It can also represent a less common pre-tax benefit.

Therefore, “Less Other Cafe 125” signifies the total amount deducted pre-tax from an employee’s gross pay for the chosen benefits within their Section 125 plan for that specific pay period. While the exact wording on pay stubs can vary, the underlying meaning remains consistent: it represents a pre-tax deduction for benefits offered through a Section 125 Cafeteria Plan. This grouping helps to streamline the appearance of the pay stub.

Impact on Your Paycheck and Taxes

The presence of “Less Other Cafe 125” on your pay stub signifies a financial advantage through pre-tax deductions. These deductions reduce your taxable income, meaning the portion of your earnings subject to federal income tax, Social Security tax, and Medicare tax is lowered. For instance, if your gross pay is $1,000 and you have a $100 “Less Other Cafe 125” deduction, your taxable income becomes $900, not $1,000.

A lower taxable income directly translates to lower tax withholdings from your paycheck. This results in tax savings, as less money is taken out for federal income tax and FICA taxes (Social Security and Medicare). While your gross pay remains the same, your net, or take-home, pay will be lower by the amount of the deduction, but the overall financial benefit often outweighs this.

These pre-tax deductions are typically reflected in Box 1 (“Wages, tips, other compensation”) of your annual W-2 form. The amount reported in Box 1 is already net of these pre-tax deductions, which is why it often appears lower than your total gross earnings for the year. While these deductions reduce federal income tax and FICA taxes, their treatment for state income tax purposes can vary. Some states follow the federal treatment, while others do not, so state-specific rules should be considered.