05 Jul Cafeteria Plans

Let’s talk about cafeteria plans. Are you hungry? Just kidding!

Cafeteria plans are actually flexible benefit plans offered by employers. The benefit plans are governed by the IRS under Section 125 federal tax code. Employees are able to choose from a selection of benefit packages to fit their needs accordingly. The benefits can be paid with contributions using pre-tax or after- tax dollars. When paying contributions with pre-tax dollars, the amount isn’t subject to federal income and FICA (Social Security and Medicare) taxes. As a result, you end up paying less in taxes and your net pay (take home) is increased slightly.

In order to qualify as a cafeteria plan, it must include one or more qualified benefits (nontaxable) or at least two benefits allowing the employee to receive cash. The following are some of the common benefits offered:

• Health insurance
• Dental insurance
• Vision
• Group term life insurance
• Long term disability
• Dependent Care
• Health Savings Accounts
• Flexible Spending Accounts
• 401(k) retirement plans (subject to FICA taxes)

Generally, once elections are made for cafeteria plans, they remain in place until the next plan year. However, if a change in status event occurs, the plans permit changes to be made. Such changes may be related to martial status, employment status, number of dependents, FMLA leave, etc.

Cafeteria plans also provide advantages to the employer. Some of the advantages are more attractive benefit packages for new hires, reduction in employer FICA, FUTA, and SUTA, lower costs for Worker’s Compensation, reduction in employee taxes, and the unused funds falling under the use it or lose it guideline remaining with the employer.

Additional information on cafeteria plans can be found on the IRS website at www.irs.gov.