What is a Cafeteria Plan?
A cafeteria plan is a program, under Section 125 of the IRC that allows employees to buy certain benefits and services, such as health care premiums or childcare on a pretax basis. Both the employer and the employees benefit from a cafeteria plan.

See how your employees' take home pay will change with this comparison.

Available Plans

POP-Premium Only Plan - the simplest level
The employee agrees to a salary reduction that will help pay for insurance premiums. Insurance premium dollars are taken from the total wages before taxes are figured thus lowering the taxable wages. The employer will pay the carrier for the premiums, which saves the employer on FICA, FUTA, and SUTA (depending on state) taxes.

Full 125 Cafeteria Plan
Several choices of voluntary products are available including an unreimbursed medical spending account, dependent care account, private health insurance account, health, dental and vision insurance, term life, disability, and cancer premiums on a pre-tax basis.

Account Types

FSA - Flexible Spending Account
FSA refers to a medical reimbursement plan. Employees can use a FSA to pay for medical expenses that can't be reimbursed through insurance or any other arrangement. The employee will elect an annual amount to be deducted pretax, subject to maximums and will be irrevocable for the 12-month plan year with exceptions. The employee will be allowed the annual election amount at any time during the year with qualified expenses.

The type of expenses that can be reimbursed from a Flexible Spending Account (FSA) must be for the diagnosis, cure, treatment or prevention of disease, or for the purpose of affecting any structure or function for the body. The expenses are to be confined strictly to those incurred primarily for the prevention or alleviation of a physical or mental defect or illness. Transportation primarily for and essential to medical care is also reimbursable. Expenses for the employee and their legal dependent can be run through the employee's FSA. Examples include yearly health insurance deductibles, co-pays for medical expenses and prescriptions, dental and vision expenses not paid by insurance, ambulance, orthodontics and over- the-counter medications. Expenditures that are "merely" beneficial to the general health of an individual are not reimbursable. Over the counter products such as vitamins and minerals, health club memberships, massage therapy for stress, and cosmetic procedures are not reimbursable.

DCAP - Dependent Care Assistance Plan
A DCAP allows the employee to pay for dependent care expenses with pretax dollars similar to the FSA. The IRS has limits that an employee can deduct from their salary:

$5,000 if the employee is married filing jointly or a single parent
$2,500 if the employee is married and filing separately.

The type of expenses that can be reimbursed from a dependent care assistance plan (DCAP) must be employment related. The expenses will be reimbursable if they enable the employee and the employee's spouse to be gainfully employed and are for the care of one or more qualifying individuals age 12 or younger for children or a dependent that is physically or mentally incapable of self-care and resides in the home at least 8 hours a day. Dates of service not yet incurred or tuition paid ahead for care cannot be reimbursed. A care provider can be out of the home or in the home, an after school program, a pre-school or nursery school, or expenses paid to a relative (not a child of the participant under the age of 19).

Private Health Insurance
This service allows individuals to reimburse themselves for alternative private health insurance. This coverage can be for both employee and the employees' dependents. It can also include Part B of Medicare and Supplemental Medicare Policies.

Like a cafeteria plan, the FSA, DCAP and Private Health Insurance must meet certain legal requirements. It must fall into a 12-month plan year with the elections irrevocable unless you experience a valid qualifying event. (Examples of Qualifying events are marriage, divorce, birth of a child, loss of coverage, change of location, new benefit options, etc.) Any unused money will be forfeited. Expenses must be "incurred" during the plan year to be reimbursed. Incurred means the date of the services was provided, regardless of when the service was  billed or paid.