Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit such as cash and one qualified benefit.
Qualified benefits include the following:. The written plan must specifically describe all benefits and establish rules for eligibility and elections. A section plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable.
A plan offering only a choice between taxable benefits is not a section plan. The plan may make benefits available to employees, their spouses and dependents. It may also include coverage of former employees, but cannot exist primarily for them. See the questions below for treatment of benefits made available to individuals who are not spouses or dependents of the employee.
Generally, no. If you only have a cafeteria plan, you are not required to file Form or Schedule F. However, if you have a welfare benefit plan, you may be required under Department of Labor regulations to file a return for that plan. Please see the Form Instructions or contact the U.
Department of Labor for more information. Assistance is also available from our Customer Account Services office. Employer contributions to the cafeteria plan are usually made pursuant to salary reduction agreements between the employer and the employee in which the employee agrees to contribute a portion of his or her salary on a pre-tax basis to pay for the qualified benefits. Salary reduction contributions are not actually or constructively received by the participant.
These testing requirements are in place to make certain that Cafeteria Plan benefits are available to all eligible employees under the same terms, and that the Plan does not favor highly compensated employees, officers, and owners. While sole proprietors cannot directly participate in the plan, they may legitimately employ their spouse and offer the spouse the benefits of the plan.
In such instances, the employer must take care to ensure that the plan must be offered on a non-discriminatory basis. The employed spouse may be considered a highly-compensated employee and as such their contributions to the plan may be limited. A partnership operates much like a sole proprietorship. While the partners cannot directly participate, they may employ a spouse who in turn may receive benefits.
The highly compensated issues apply as stated above. While all non-related employees may participate in the plan, depending upon the plan's parameters, non-discriminatory rules apply. In S-Corporations, eligible employees who are not shareholders and who are not defined as highly compensated generally may participate to the fullest extent.
Eligible employees, who are defined as highly compensated, excluding shareholders, will be subject to the non-discriminatory rules. These individuals may not participate in the plan; nor may their employee-spouse, children, parents, and grandparents.
Request Information Refer a Provider. Home » Resources » Section Cafeteria Plan. Premium Only Plan POP Employers may deduct the employee's portion of the company-sponsored insurance premium directly from said employee's paycheck before taxes are deducted.
Plan Year and Grace Period The plan year is one full year days and generally begins on the first of a month. Uniform Coverage This aspect of Section allows an employee to be reimbursed for qualified medical expenses that exceed their contributions to date.
Nondiscrimination Testing Section of the Internal Revenue Code requires that Cafeteria Plans be offered on a nondiscriminatory basis. Under a cafeteria, or Section , plan, you pay for your employer-sponsored benefits with pretax money. Your employer deducts your payments from your wages before withholding certain taxes.
Your employer doesn't include your pretax payments in your taxable wages on your annual W In some cases, cafeteria plan reporting on your W-2 is mandatory. Cafeteria plan benefits come in various forms, including health and life insurance, dependent care and adoption assistance, accident insurance and health savings accounts.
Each benefit has its own tax implication; not all benefits are excluded from the same taxes. For example, no federal income tax, Social Security tax or Medicare tax comes out of your health insurance premiums.
Boxes 1, 3 and 5 of your W-2 respectively stand for your federal, Social Security and Medicare taxable wages. Your cafeteria plan premiums aren't included in the taxable wages of those boxes if they aren't subject to the tax.
This data is optional and can clear up any confusion you have about the amount in Box 1. For example, the year-to-date gross amount on your last pay stub for the year shows all of your wages for the year, including your pretax payments. Box 1 of your W-2 shows only your taxable wages. If you add the amount in Box 14 to the amount in Box 1, it should equal the amount shown on your pay stub.
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