Under a 125 plan, which federal taxes are pretax deductions subject to?

When considering a Section 125 plan, commonly referred to as a "Cafeteria Plan," it's important to understand the treatment of pretax deductions and how they interact with federal taxes. Under these plans, certain employee benefits can be offered on a pretax basis, allowing employees to pay for qualified expenses before income tax is deducted.

The correct understanding is that contributions made to a Section 125 plan are generally not subject to federal income tax (FIT) when deducted from an employee’s wages. This favorable tax treatment extends to specific types of qualified benefits, thus reducing the employee's taxable income.

Moreover, Section 125 contributions are typically exempt from Federal Unemployment Tax Act (FUTA) as well. It's significant to note, however, that contributions made to the plan can still be subject to FICA taxes, which include Social Security and Medicare taxes.

In this context, the correct response highlights that pretax deductions under a 125 plan are not subject to federal income tax and FUTA, thus leading to the conclusion that they are exempt from these taxes. Therefore, the option that states "None" accurately captures the pretax treatment regarding federal income and unemployment taxes, while FICA taxes must still be accounted for depending on the specific benefits chosen