Cafeteria Plans

A "Cafeteria Plan" sometimes referred to as a "Section 125 Plan" is a written plan which allows employees to choose between receiving two or more benefits consisting of cash or "qualified benefits".  The qualified benefits selected are excluded from the employees gross wages, thereby lowering their payroll taxes, as well as lowering the payroll taxes the employer pays.  It is a win/win for both parties.

A complete "Cafeteria Plan" includes three main categories:

»  Health and accident insurance premiums
»  Out of pocket unreimbursed medical expenses
»  Dependent care assistance

Employer's may choose to offer a complete cafeteria plan, all of the above, or offer only certain parts of the plan.  Each part is described below:

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The health and accident insurance premium only part of a cafeteria plan is referred to as a POP plan or "Premium Only Plan".  This allows employees to have their portion of accident and health insurance premiums deducted from their gross pay and pay payroll taxes on the balance.
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Out of pocket unreimbursed medical expenses, also referred to as a "Flexible Spending Account" or "FSA", allows employees to deduct a set amount from each paycheck to be used during the year to pay for qualified unreimbursed medical expenses.  These expenses may include such things as doctor copay's, dental expense and vision expenses.
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Dependent care assistance or "DCAP",  allows employees to withhold pre-tax dollars to pay for dependent care expense during the year.

Plan set up is relatively simple and straight forward, but like all benefits with tax savings, the IRS does impose rules and some restrictions for offering these plans.  Feel free to give us a call with any questions you may have.

Have a Question? Feel free to call us at 405. 720.0333