Cafeteria Plans

Glynn Griffing & Associates offers a wide range of services associated with Section 125 Cafeteria Plans.

What is a Cafeteria Plan?

The Cafeteria Plan is a nickname for Section 125 of the Internal Revenue Code that allows employees to pay for benefits with pre-tax dollars. These include:

• Certain Insurance premiums
• Medical Flexible Spending Account (FSA)
• Dependent Care Flexible Spending Account

How Cafeteria Plans Benefit Employees

Cafeteria Plans are one of the most popular employer benefits because they allow employees to save federal, state, and social security taxes on the benefits they choose. So, depending on your tax bracket, that could add up to as much as 40% in tax savings, giving you more take-home pay.

This benefits comparison shows how deducting medical expenses before taxes saves participants money.

Annual Savings: $300.00

Medical Flexible Spending Accounts (FSA)

The IRS allows employees to set aside tax-free dollars from their paycheck to pay for medical expenses that are not covered by insurance. Participants decide on an annual amount, and that sum is divided into the number of pay periods in the year. That amount is what the employee will see being withheld from their paycheck.

This election cannot be changed midyear unless there is a qualified event in their life.

Eligible Medical Expenses

Below are some examples of qualified medical expenses. Cosmetic and elective procedures are not eligible. This is not a comprehensive list – please click here for a list of all expenses.

The Use-It-Or-Lose-It-Rule

Contributions to an FSA must be used by the end of the year, as they do not roll over. Participants are urged to be conservative with their contributions and only set aside money that they know will be spent during the year.

Dependent Care

Dependent Care FSAs allow employees to set aside tax-free money to pay for dependent care. Typical Dependent Care providers include childcare centers, day care, nursery schools, summer day camps, pre-school care, after-school care, and private sitters who are not the employee’s dependent.

What qualifies as a Dependent Care Expense?

• Expenses incurred that allow you (and your spouse, if married) to work or look for work.
• Expenses for the well-being and protection of a qualifying person.
• Expenses paid to a dependent care center if the center complies with all applicable state and local regulations.

What is NOT covered under Dependent Care Reimbursements

• Clothing, entertainment, food, overnight camp, or school tuition unless incidental to and not easily separated from total cost (ex. preschool childcare services).
• Expenses incurred while off work due to illness, regardless of whether or not sick pay is received.
• Payments made to children under the age of 19 at the end of the year.
• Payments made to a relative if the person is a legal dependent.

The IRS has set these maximum allowable contributions for reimbursement: $5000.00 for a married couple filing jointly; $5000.00 for a single parent; $2500.00 for a married person filing separately. The child must be under 13 years old and must be a dependent under federal tax rules.

Note: Unlike medical FSA’s, dependent care FSA’s are not pre-funded; employees cannot receive reimbursement for the full amount of the annual contribution on day one. Employees can only be reimbursed up to the amount withheld from their paycheck during that plan year.

Premium Only Cafeteria Plans

The Premium Only Plan (POP) enables employees to pre-tax eligible insurance premiums such as health insurance, term life insurance, dental insurance, and vision insurance. By participating in this program, employees can reduce their tax liability and increase their take-home pay.

By using a pre-tax salary deduction for these expenses, employees typically save between 15%-40% on premiums.

Pre-Tax Benefits for Participants

• Participants take home more pay and pay less taxes because Federal taxes, State taxes, and Social Security are calculated after Insurance Premium have been deducted.
• W-2s are reduced by the amount of the election.
• There is no tax liability on money contributed to Section 125 plans. W-2s reflect the amount after POP deductions are subtracted.

Premiums Eligible Under POP

Premium payments for the following benefits may be eligible under POP when payroll is
deducted through an employer:

• Major Medical Insurance
• Supplemental Health Insurance
• Group Term Life Insurance-Employee only. Maximum of $50,000 of coverage
  premium is eligible.
• Cancer Insurance
• Intensive Care Insurance
• Dental Insurance
• Vision Insurance

---

Are you interested in a Cafeteria plan for your business? Please contact Glynn Griffing & Associates to hear more about how we can offer plans and policies that will benefit your staff.