Do the rules of Section 125 affect whether any particular benefit offered under a Cafeteria Plan is a taxable or nontaxable benefit?
A-16: Generally, no. A benefit that is nontaxable under its Internal Revenue Code when offered separately is treated as a nontaxable benefit under a cafeteria plan only if the rules providing for the exclusion of the benefit from gross income continue to be satisfied when the benefit is offered under the cafeteria plan. For example, if $50,000 in groupterm life insurance is offered under a cafeteria plan and the rules under section 79(a) governing the exclusion of the cost of this benefit from gross income are satisfied, the rules of section 79(d) still apply to determine the status of the benefit as taxable or nontaxable for key employees who participate in the plan. See Q&A-17 and Q&A-18, however, regarding the inclusion of coverage under an accident or health plan, dependent care assistance program, or qualified group legal services plan in a cafeteria plan. Similarly, if a cafeteria plan offers benefits that are nontaxable under the Internal Revenue Code when offered outside of a c
A.No. A benefit that is nontaxable under the Internal Revenue Code when offered separately is treated as a nontaxable benefit under a Cafeteria Plan. If a benefit that is taxable under the Internal Revenue Code when offered separately is offered under a Cafeteria Plan, the benefit will continue to be a taxable benefit under the Cafeteria Plan. The taxability of an otherwise nontaxable benefit offered under a Cafeteria Plan will be determined using the discrimination test under Code Section 125. (Reg. Sec. 1.125-1 Q&A-16)Q.
Related Questions
- Do the rules of Section 125 affect whether any particular benefit offered under a Cafeteria Plan is a taxable or nontaxable benefit?
- What benefits can be offered through a Cafeteria Plan to help lower the employee’s gross taxable income?
- How does a QRD affect cafeteria plan non-discrimination rules?
