2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1005 - Computation of Taxable Income (§§ 30101 — 30157) › Subchapter B - Treatment of Certain Income Items (§§ 30111 — 30119) › § 30116 - Cafeteria Plan

(a) General rule.— No amount shall be included in the gross income of a participant in a cafeteria plan used according to such plan to acquire qualified benefits solely because, under the plan, the participant may choose among the benefits of the plan.
(b) Exception for highly compensated participants.—
(1) Highly compensated participants.— In the case of a highly compensated participant, the provisions of subsection (a) shall not apply to any benefit attributable to a plan year for which the plan discriminates in favor of:
(A) Highly compensated individuals as to eligibility to participate, or
(B) highly compensated participants as to contributions and benefits.
(2) Year of inclusion.— Any benefit described in clause (1) shall be treated as received or accrued in the taxable year of the participant in which the plan year ends.
(c) Discrimination as to benefits or contributions.— For purposes of subsection (b)(1)(B), a cafeteria plan does not discriminate where qualified benefits and total benefits (or employer contributions allocable to benefits exempt by law and employer contributions for total benefits) available under the plan do not discriminate in favor of highly compensated participants.
(d) Definitions.— For purposes of this section:
(1) Cafeteria plan.—
(A) The term “cafeteria plan” means a written plan approved by the Secretary under which:
(i) All participants are employees, and
(ii) the participants may choose among two (2) or more benefits consisting of cash and qualified benefits.
(B) Deferred compensation plans excluded.— The term “cafeteria plan” does not include any plan which provides for deferred compensation, except profit-sharing or stock bonus plan that includes a qualified cash or deferred arrangement (as defined in § 30391(e) of this title) to the extent of amounts which a covered employee may elect to have the employer pay under such plan on behalf of the employee.
(C) Limitation for group health or accident plans.— An employee covered under a cafeteria plan that provides for employer contributions to a group health or accident plan described in § 30102(a)(2)(D) of this title, shall not exclude such health or accident benefits, except that such employee shows that he/she is covered by another private health plan whether as the insured, spouse, or dependent.
(2) Highly Compensated Participant and Individual.—
(A) The term “highly compensated individual” means an individual described in subparagraph (i), (ii), (iii) or (iv) of paragraph (B).
(B) The term “highly compensated participant” means a participant who is:
(i) An officer,
(ii) a shareholder owning more than five percent (5%) of the voting power or value of all classes of stock of the employer,
(iii) highly compensated, in accordance with the provisions of § 30391(e)(3)(E)(iii) of this title,
(iv) a spouse or dependent (within the meaning of § 30138(d) of this title) of an individual described in subparagraph (i), (ii) or (iii) of this paragraph.
(3) Qualified benefits.— The term “qualified benefit” means the cost or the value of any benefit which is not includible in the gross income of the employee by reason of an express provision of § 30102(a)(2) of this title. Such term includes any group term life insurance which, as provided in § 30102(a)(2)(A) of this title, is includible in gross income of the insured as well as any other benefit permitted under regulations. However, such term shall not include any product which is advertised, marketed, or offered as long-term care insurance.
(e) Special rules.—
(1) A collectively bargained plan not considered discriminatory.— For purposes of this section, a plan shall not be treated as discriminatory if the plan is maintained under an agreement which the Secretary of Labor and Human Resources and the Labor Relations Board finds to be a collective bargaining agreement between employee representatives and one or more employers.
(2) Health benefits.— For purposes of subsection (b)(1)(B) of this section, a cafeteria plan which provides health benefits shall not be treated as discriminatory if:
(A) Contributions under the plan on behalf of each participant include an amount which:
(i) Equals one hundred percent (100%) of the cost of the health benefit coverage under the plan of the majority of the highly compensated participants similarly situated, or
(ii) equals or exceeds seventy-five percent (75%) of the cost of the health benefit coverage of the participant (similarly situated) having the highest cost health benefit coverage under the plan, and
(B) contributions or benefits under the plan in excess of those described in paragraph (A) bear a uniform relationship to compensation.
(3) Certain participation eligibility rules not treated as discriminatory.— For purposes of subsection (b)(1)(A) of this section, a classification shall not be treated as discriminatory if the plan:
(A) Benefits a group of employees described in § 30391(a)(3)(B)(i)(I) of this title, and
(B) meets the following requirements:
(i) No employee is required to complete more than three (3) years of employment with the employer or employers maintaining the plan as a condition of participation in the plan, and the employment requirement for each employee is the same, and
(ii) Any employee who has satisfied the preceding employment requirement and who is otherwise entitled to participate in the plan commences participation no later than the first day of the first plan year beginning after the date the employment requirement was satisfied unless the employee was separated from service before the first day of that plan year.
(f) Required reports.—
(1) Recordkeeping.— Every employer maintaining a cafeteria plan during any taxable year shall keep such records as may be necessary for purposes of determining whether the requirements of the applicable exclusion are met.
(2) Additional information or documents.— The Secretary may require by regulations the filing of any information or document related to the plan as necessary.
(g) Ineligibility of the commonwealth and municipal governments.— A cafeteria plan shall not be considered as a cafeteria plan under the provisions of this section if it is part of a plan established by the Legislative Assembly of Puerto Rico, the Government of the Capital City, the municipalities and the agencies, instrumentalities and public corporations of the Government of Puerto Rico.
History —Jan. 31, 2011, No. 1, § 1032.06, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 22.