Insurance premiums can be easily predicted, as can child care. Medical expenses may be a different story, however, and your employees must be forewarned. First, there is a matter of goodwill as was mentioned above. Somewhat more measurable, however, are the monetary savings to the business. As the taxable wages for Social Security and Medicare are reduced, so are the related taxes which must be paid be the employer.
Cafeteria plans share certain administrative hassles with retirement plans.
For example, the plan must be in writing. Elections to participate must also be written. A cafeteria plan must not discriminate in favor of the highly compensated employees and must be tested for discrimination annually. Any benefits received by the highly compensated group from a discriminatory plan become taxable to them. The plan must also file a tax return, Form 5500.