What is a cafeteria plan?
A cafeteria plan is a benefit plan established by an employer that allows participants to choose from a menu of qualified benefits in order to pay all or a portion of the employee cost on a pretax basis. Cypress-Fairbanks ISD’s plan is known as the Premium Only Plan (POP). All premiums paid by an employee for medical, dental, supplemental life insurance, and the cancer and dread disease insurance plans are deducted from the employee’s gross income before federal income taxes are withheld. Cafeteria plans are sometimes called “125 plans” because they are governed by Section 125 of the Internal Revenue Code. Although the tax savings are substantial, the IRS Code does mandate coverage restrictions. Once coverage is elected, changes to an employee’s coverage can only be made at the annual renewal (enrollment) period each year or no later than 31 days after an employee experiences a “qualified change in family status.” Any change to an employee’s coverage during the plan year must be consis
The idea behind cafeteria plans is that amounts which would otherwise be taken as taxable salary are applied, usually tax-free, for needed services like health or child care. Besides saving employee income and social security taxes, salary diverted to cafeteria plan benefits isn’t subject to social security tax on the employer. With a cafeteria plan, employees can choose from several levels of supplemental coverage or different benefit packages. These can be selected to help employees achieve personal goals or meet differing needs, such as health coverage (family, dental, vision), retirement income (401(k) plans) or specialized services (dependent care, adoption assistance, legal services (legal services amounts are taxable)).
The Internal Revenue Service allows employees to pay some benefit premiums with before tax dollars. It is entirely your choice which benefits you will include on the Cafeteria Plan. In fact, that’s where the name cafeteria comes from — you pick and choose the benefit premiums you want to include. All health benefit plans offered in the District, dental plan, the cancer/catastrophic illness plan, and the group term life insurance are available for payment through the Cafeteria Plan. For many employees this becomes a wonderful benefit because it can allow your gross salary to be reduced, which in turn lowers the amount of federal income tax you pay each pay period! You see an immediate tax savings. Is This Legal? Absolutely! It is allowed under Section 125 of the tax code. Anyone with doubts or questions can contact the local IRS Office directly for full details. Will I Have To Pay Taxes On These Benefits Later? No. The benefit costs are deducted from your salary before taxes, decreasin
A cafeteria plan is an employee benefits plan which allows employees to choose from a list of options, much like they might choose from a cafeteria menu. There are some distinct advantages to cafeteria plans for both employees and employers, especially for small businesses. If you work for a company which offers a cafeteria plan, check your options out carefully, and don’t be afraid to ask for assistance to ensure that you choose the benefits you need. Some common inclusions on the menu of a cafeteria plan are: cash, health insurance, childcare assistance, life insurance, payments into retirement accounts, adoption assistance, paid leave, and assistance with care for injured or disabled family members. Depending on an employee’s personal needs, he or she can choose from these options to construct the ideal benefits package. For example, a young woman who is planning on having children in the near future might choose to put payments toward paid maternity leave, health insurance, and chi
