Cafeteria Plan

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Related to Cafeteria Plan: cafeteria benefits

Cafeteria Plan

1. An employee benefit in which an employee may contribute so much of his/her pretax income into a special account that may be used for a broad range of purposes. One may use the funds in a cafeteria plan for matters such as medical expenses, life insurance premiums, or other things. This allows the employee to structure his/her employee benefits in a way that best suits their needs for a given period of time. For example, a young, healthy employee may have the ability to choose a less expensive, less comprehensive insurance plan than he/she might otherwise receive from an employer. It is formally called a Section 125 plan. See also: Flexible Spending Account.

2. An employee benefit plan in which employees may choose from multiple options. For example, an employee may choose among a health insurance plan with no deductible, one with a $500 deductible, or one with a $1,000 deductible.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Cafeteria plan.

Some employers offer cafeteria plans, more formally known as flexible spending plans, which give you the option of participating in a range of tax-saving benefit programs.

If you enroll in the plan, you choose the percentage of your pretax income to be withheld from your paycheck, up to the limit the plan allows. You allocate your money to the parts of the plan you want to participate in.

For example, you can set aside money to pay for medical expenses that aren't covered by insurance, for child care, or for additional life insurance coverage. As you incur these kinds of expenses, you are reimbursed from the amount you have put into the plan.

Since you owe no income tax on the money you contribute, you actually have more cash available for these expenses than if you were spending after-tax dollars.

However, you must estimate the amount you're going to contribute before the tax year begins, and you forfeit any money you've set aside but don't spend. For example, if you've set aside $1,500 for medical expenses but spend only $1,400, you lose the $100.

In some plans the deadline for spending the money in your flexible spending account is December 31. Other plans provide up to a three-month extension.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

Cafeteria Plan

A plan wherein an employer offers a choice of salary or specified nontaxable fringe benefits from which participating employees may select. The plan may be funded with employer contributions, employee contributions (usually through salary reduction agreements) or a combination of both. Also called a section 125 plan.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary
References in periodicals archive ?
This is inexpensive and can be accomplished by adding a Section 125 cafeteria plan with HSA deferrals as an option.
In 2010, the Patient Protection and Affordable Care Act, one of the two laws in the Affordable Care Act package, created a version of the cafeteria plan free from nondiscrimination testing for employers with fewer than 100 employees.
The BASE 125 Cafeteria Plan allows employers to customize benefits and save money.
Due to the cost of healthcare and other benefits available under the cafeteria plan, cafeteria plans are widely used and employees enjoy the benefits.
"PRAs: A Different Kind of Cafeteria Plan Entree." California Broker [accessed on October 17, 2010].
One possible way for people with individual coverage to obtain the same tax benefits as employees is to pay for individual insurance through payroll deduction using a "cafeteria plan." Authorized by Section 125 of the Internal Revenue Code, cafeteria plans permit employers to offer voluntary benefits on a pre-tax basis.
Dollar Limitations on Health FSAs under Cafeteria Plans: For a health FSA to be a qualified benefit under a cafeteria plan, the maximum amount available for reimbursement of incurred medical expenses of an employee, the employee's dependents and any other eligible beneficiaries of the employee, under the health FSA for a plan year, cannot exceed S2,500.
(6) A full-time life insurance salesperson who is treated as an employee for Social Security purposes will also be considered an employee for cafeteria plan purposes.
In order to increase participation in these types of plans, Kushner feels it is important that the owners of the more typical small business entities be considered "employees" for purposes of cafeteria plans. As long as they are considered "employees," they can be covered and be able to participate in the cafeteria plan option.
A cafeteria plan allows employees to contribute a certain amount of their gross income to a designated account before taxes are calculated.
A cafeteria plan is one under which employees may, within limits, choose the form of employee benefits from a "cafeteria" of benefit plans provided by their employer.
On April 21, 2008, Tax Executives Institute submitted comments on the proposed cafeteria plan regulations issued under section 125 of the Internal Revenue Code.