Questions and Answers
What is a Cafeteria Plan?
A Cafeteria Plan (authorized under IRS Code § 125) is a written benefit plan maintained by a company for the benefit of its employees. As a participant, you can pay your portion of certain nontaxable benefits with before-tax dollars by salary reduction rather than with after-tax dollars through payroll deductions. In other words, you can have your payment for qualified benefits deducted from your paycheck before your employer calculates your payroll taxes.
What benefits are allowed under a Cafeteria Plan?
How will a Cafeteria Plan benefit me?
Use our Annual Cafeteria Plan Savings Calculator to find out how a Cafeteria Plan can benefit you!
By participating in the Plan, you will not have to pay income tax or Social Security on your elections! Uncle Sam does not get a share of the money!
Let us look at one employee and see how he saved on taxes by participating in a cafeteria plan. Here is the employee situation:
- Salary: $2,500 a month
- Withholding: 28% for federal withholding and 7.65% for Social Security
- Before participation in a cafeteria plan, employee paid the following:
- Monthly premium for health insurance: $348
- Out-of-pocket medical expenses: Monthly average of $100
- Day Care Expenses: $200 a month
The employee decided to pay for the premiums through the cafeteria plan, to put $100 a month in a Health FSA and $200 a month into the Dependent Care Expense Plan.
To see how this employee saved $230 a month or $2,760 a year by participating in his cafeteria plan, click here (PDF document, opens in a new window).
Can I change my elections later?
Your elections cannot be changed during the Plan Year unless one of the following events occurs:
- Changes in Status
- Change in marital status
- Change in the number of dependents
- Change in employment status
- Dependent’s satisfying or ceasing to satisfy dependent eligibility requirements
- Cost Changes
- Significant Cost Changes
- Significant Curtailment of Coverage
- Addition or Improvement of Benefit Package Option
- Change in Coverage of Spouse or Dependent under Another Employer Plan
- Loss of other health coverage
- FMLA Leave
- COBRA qualifying event
- Judgment, decree, or order
- Entitlement to Medicare or Medicaid
The changes that you may make depends on the event and the benefit.
How do I enroll?
Submit a Benefit Election Form. You will receive an enrollment packet including information on the Plan itself and the benefits your employer is offering, a Benefit Election Form, and instructions on how and when to submit the Benefit Election Form.
What happens if I do not return a Benefit Election Form?
If you are not currently enrolled in the cafeteria plan, it will be assumed that you do not wish to participate.
If you are currently enrolled in the cafeteria plan, it will depend on your current elections.
- If you currently have elected insurance premium benefits, it will be assumed that you want to continue these elections, and your deductions will be continued for the next plan year.
- If you currently have elected an Health FSA, Dependent Care Assistance Plan, or a Health Premium Reimbursement Account, it will be assumed that you do not want to continue participation in these accounts and your deductions will cease at the beginning of the next plan year.