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Cafeteria Compensation Plans
IRC Sec.125
Cafeteria Plans (also called "Flexible Benefit Plans") allow participating
employees to choose among two or more benefits consisting of cash and "qualified
benefits." There is no need to change current benefit programs. If the employer is
unable to pay for fringe benefits, the employee can enter into a salary reduction
agreement with the employer. The employer then uses these funds to pay for the employee's
benefits.
This allows the employee to pay for his or her own benefits with pre-tax dollars.
How Is The Employee Benefited?
- Lower gross income means lower FICA and income tax withholding.
- Employee can choose the benefits most needed.
- Employee is not required to take benefits which his or her spouse already has with
another employer.
- Tax savings can be put aside for retirement needs, e.g., in a Sec. 401(k) plan, life
insurance,etc.
- Lower gross income may qualify the employee for the earned-income credit on his or her
income tax return.
How Is The Employer Benefited?
- Lower gross pay means lower payroll taxes (FICA, FUTA, and sometimes Worker's
Compensation insurance).
- Employee is allowed to share the cost of benefits, if desired.
- Helps employer retain key employees.
- Boosts employee morale by showing employer concern.
- Employer may be able to reduce fringe benefit costs.
CLICK HERE TO REQUEST MORE INFORMATION ON CAFETERIA COMPENSATION
PLANS |
