OFFERING PEACE OF MIND THROUGH BETTER BENEFITS AND WELLNESS SOLUTIONS
Cafeteria Plan Authorized by Internal Revenue Code 125
By Installing a Cafeteria Plan Authorized by Internal Revenue Code 125 it is possible to:
- Improve employee benefits without changing them
- Increase employee spend-able income
- Increase employer profits
A Popular Benefit:
Cafeteria Plans are quickly becoming the most popular fringe benefit being offered to employees today. Since laws were passed by Congress permitting Cafeteria Plans over eighteen years ago, many major businesses have incorporated Cafeteria Plans into their fringe benefit packages.
- A Cafeteria Plan attracts and helps retain good employees
- The company can help their employees significantly reduce their
tax liability with a Cafeteria Plan.
- An employer can also recognize significant tax savings
- A Cafeteria Plan Does not require a change in already established
- The benefits resulting from a Cafeteria Plan are applicable to all
business, large or small.
What is a Cafeteria Plan?
A Cafeteria Plan is a written document which allows participating employees to redirect qualifying expenses into “tax free” benefits. In most plans, eligible employees have the following options:
- To continue receiving their normal compensation, or
- To direct a portion of their salary to the Cafeteria Plan to pay for
qualifying benefits (e.g., health insurance premiums,
un-reimbursed medical expenses, or dependent care expenses)
on a tax-free basis
What benefits can my company include in the Cafeteria Plan?
Your plan can include all or any combination of the following:
- Health insurance premiums (the employee’s portion).
- Medical expenses not covered by insurance. Typical expenses
include eyeglasses, annual physicals, plan deductible, and any
co-insurance amounts not covered by the plan.
- Adult and child day care expenses (the cost to care for a
dependent while the employee works, including pre-school up to
but not including kindergarten).
- Other insurance coverage, including group term life insurance
premiums, individual or group dental, disability, cancer or accident
How will your company save money?
Your company can recognize the following savings with a Cafeteria Plan:
- FUTA and Social Security taxes will be avoided on the amounts
redirected by the participating employees in the plan.
- Insurance premiums based on your employees taxable salaries,
such as workers’ compensation can be reduced.
Employer Savings Chart: How will the employer save money?
Based on 30 Employees, Average $2,000/mo Salary
Cafeteria Plan Cafeteria Plan
Employee Salary $2,000 $2,000
Contribution 0 500
Taxable Salary 2,000 1,500
FICA at 7.65% 153 115
(Average 5%) 100 75
Employee Payroll Cost 2,253 2,190
Monthly per Employee Savings $60
Annual per Employee Savings $756
First Year Savings with 30 Employees: $22,680
Employee Saving Chart: How will your employee save money?
Cafeteria Plan Cafeteria Plan
Employee Salary $0 $2,000
Benefit Expenses $0 $0
(Redirected from salary on pre-tax basis)
Taxable Income $2,000 $2,000
Taxes & FICA $500 $ 375
Payroll Income $1,500 $1,125
Tax Free Benefit Expense
Reimbursement $ 0 $ 500
Spendable Income $1,500 $1,625
Employee Monthly Increase $125
Annual Employee Increase w/o a Raise: $1,500
30 Employees $45,000