Cafe 125 is not something being taken from you. It is your employer explaining why the wage figures on your W-2 do not match your salary, and it is usually printed as Less Other Cafe 125, which is a confusing way of saying “we already subtracted this”.
What it is
A cafeteria plan under Section 125 of the tax code. The name comes from the idea of choosing benefits from a menu, and the deductions taken through it are the ordinary ones:
- Your share of health, dental and vision premiums.
- A health or dependent care FSA.
- Often an HSA, where contributions run through payroll.
You took these deductions every pay period during the year. Nothing new is happening on the W-2. The line exists so the numbers reconcile, because otherwise your wage boxes would look wrong and nobody could tell you why.
What it did to each box
Take someone on $60,000 who paid $4,000 into health premiums and an FSA through the year, and put $3,000 into a 401(k):
| Box | What it holds | Amount | What came out |
|---|---|---|---|
| — | Actual salary | $60,000 | — |
| 1 | Federal taxable wages | $53,000 | Cafe 125 and the 401(k) |
| 3 | Social Security wages | $56,000 | Cafe 125 only |
| 5 | Medicare wages | $56,000 | Cafe 125 only |
So Cafe 125 is the answer to “why are my Social Security wages less than my salary”. It is not the answer to “why is Box 1 different from Box 3”. That gap is your retirement contribution, which comes out before income tax and not before Social Security and Medicare. On a W-2 it turns up as code D in Box 12.
Why it says “Less Other”
Box 14 on a W-2 is a free text box. The IRS does not tell employers what to put there, so payroll systems use it for whatever they think you might ask about, in whatever wording the software defaults to. “Less Other Cafe 125” is one system’s way of writing “minus other Section 125 deductions”.
Because it is informational, there is nothing to do with it. No tax software will ask you to enter it, it does not go on your return, and it does not change your refund. If your filing software offers a Box 14 field, leaving it blank changes nothing about your tax.
It is quietly the best deal on your pay stub
This is the part worth knowing, and it is why the reconciliation above matters rather than being trivia.
A Section 125 deduction is the only common one that escapes both income tax and the 7.65% for Social Security and Medicare. A traditional 401(k) escapes income tax only. So a dollar routed through the cafeteria plan is cheaper to you than a dollar routed into retirement.
At a 22% marginal rate, a dollar of health premium costs you about 70 cents of take-home. A dollar into a 401(k) costs about 78 cents. The difference is the 7.65% that Section 125 dodges and the 401(k) does not. That is not an argument for skipping retirement savings, which comes with a match and a purpose. It is an argument for making sure anything that can go through the cafeteria plan actually does, particularly an HSA, which many people fund from their bank account and lose the FICA saving on entirely. Running it through payroll instead is free money.
There is one honest cost on the other side. Because Cafe 125 lowers Box 3, it lowers the earnings recorded against your Social Security number, which very slightly lowers your eventual benefit. For most people the saving today is worth far more than the fraction of a benefit decades away, but it is a real trade rather than a free lunch. A 401(k) is the opposite: it does not reduce Box 3, so it never touches your future benefit.
Checking it against your own pay stub
The Cafe 125 figure should equal the year-to-date total of your health, dental, vision and FSA deductions on your final pay stub of the year. If it does not, something was categorised wrongly, and February is a much better time to find that out than April.
The same deductions are why FICA on your stub is never exactly 7.65% of gross, and why your FIT taxable wages are lower again. One set of deductions, three different wage bases, all reconciling to the same W-2.
Frequently asked
Section 125 cafeteria plan deductions: your health, dental and vision premiums, an FSA, and often an HSA, all taken from your pay before tax. The line is informational. It tells you the amount your employer subtracted before working out the wage figures on the form.
Just that the amount was subtracted. Box 14 of a W-2 is a free text box the IRS does not govern, so payroll systems label it however their software defaults. 'Less' means minus. There is nothing to enter and nothing to do.
Yes, and more thoroughly than most deductions. It comes out before federal income tax and before Social Security and Medicare, so it reduces Box 1, Box 3 and Box 5 alike. A 401(k) contribution only reduces Box 1.
Usually your retirement contributions. Cafe 125 comes out of both boxes equally, so it cannot explain a gap between them. A traditional 401(k) comes out of Box 1 only, which is why Box 1 is normally the smaller figure. That amount appears as code D in Box 12.
No. The amount is already reflected in the wage boxes, so entering it changes nothing. Box 14 is for your information and most tax software will let you skip it entirely.
Per dollar, it costs you less, because it escapes the 7.65 percent for Social Security and Medicare as well as income tax. At a 22 percent marginal rate a dollar of health premium costs about 70 cents of take-home against about 78 cents for a 401(k). They do different jobs, but it is worth making sure anything eligible for the cafeteria plan, especially an HSA, actually runs through payroll.