CafeteriaPlan.info Information & Facts about Cafeteria Plans
You’ve heard about them, but never really understood what a “Cafeteria Plan” is. This site attempts to explain the basics of cafeteria plans, how they can benefit you, what to watch out for, and offers some recommendations based on our research of the subject.
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Introduction

If you’re talking about cafeteria plans in the environment of labor and personnel, the topic has nothing to do with the layout of the lunch room and strategic placement of the jello.  Quite the contrary, cafeteria plans are a name given to benefit plans that meet the definition of Section 125 of the Internal Revenue Code (the federal tax code and laws).  This code section’s unique plan offering allows employees who participate the ability to pick which benefits they want, ergo the title “cafeteria” plan, similar to the lunch offerings in such a facility.

Cafeteria plans generally give participating employees the ability to choose whether they take cash for a benefit and buy it on their own, presumably, or they pick one of the offerings provided by an employer.  In practice, Cafeteria Plans a better known as flexible benefit plans.  Regardless of the name, this kind of plan is always set up to offer employees a choice so that they can tailor the benefit plan that fits them best, rather than being given a default package provided by an employer’s choice.  The plan’s choices, regardless of which one, are paid for with non-taxable employer dollars.

How Did These Plans Get Started?

Four years earlier, in the late spring of 2005, the federal government through the IRS notified employers that they were allowed to craft Cafeteria Plans to offer benefits to employees.  Within this new system, the employee’s income redirected to the plan is considered a pre-tax deduction.  Since the employee doesn’t actually every get the money involved, it is not considered taxable.  However, the employee gets the choice to spend it on a benefit of their choice among the options offered, so there is a sense of spending ownership otherwise not available.  Since they are not taxable wages, the same monies also don’t have other salary-driven expenses charged to them as well, including FICA withdrawals and Medicare.
 
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