Cafeteria Plan

What is a cafeteria plan?

A cafeteria plan permits employees to contribute a certain amount of their gross income to at least one accounts pre-tax. The most common accounts are utilized to put something aside for medical costs not covered by insurance.

More profound definition

In some cases alluded to as a "Section 125 plan" (in reference to the IRS section that permits such plans), a cafeteria plan is intended to assist you with putting away money in a way that permits you to save money on taxes. Let's assume you make $50,000 each year and contribute $3,000 to a Section 125 plan. Your gross taxable income naturally drops by $3,000 to $47,000. Assuming you are single, $47,000 puts you in the 25 percent tax bracket, meaning you save $750 by not paying taxes on the amount contributed to your plan.
Contingent upon your tax bracket, you can save from 10 percent to 40 percent on city, state and federal income taxes. You additionally save money on Social Security and Medicare taxes. Employers offer these programs since they set aside cash, too, by paying less toward your Social Security and Medicare taxes.

Cafeteria plan models

• Premium just plan (POP). A POP takes into consideration group insurance premiums to be paid on a pre-tax basis. These insurances incorporate wellbeing, dental, vision, remedy, group term life (up to $50,000), hospital indemnity, accident, Medicare supplement, disease and disability.
• Flexible spending account (FSA). A FSA can be utilized to pay deductibles and co-payments, as well as pay for remedies, certain medical and dental expenses for a spouse and wards, and for medical equipment, for example, glucose test packs.

Is a FSA right for you?

• Wellbeing savings account (HSA). A HSA is intended to assist those with high deductibles set to the side money to pay their medical expenses. A HSA can be utilized to pay for medical, dental and vision care; doctor prescribed drugs; health care coverage on the off chance that you are getting joblessness; COBRA continuation inclusion; Medicare part An or part B installments; and payments for qualified long-term care insurance.

Highlights

• These plans are many times more flexible than others.
• Cafeteria plans can be more complex and demand greater investment to oversee.
• Employees have several pre-tax options including insurance benefits, retirement plans, and benefits that assistance with life occasions.
• Cafeteria plans permit employees to browse an assortment of pre-tax benefits.