cafeteria style benefits
Cafeteria-style plans provide a special exception to federal income tax rules that apply to an employeeâs earnings. In a cafeteria-style plan, employees are allowed to select among various nontaxable benefits and cash. Benefits to Employees. In a cafeteria-style plan, an employee generally receives a certain number of dollars from the employer to purchase particular elements of a benefits plan. This enables employees to purchase benefits, such as health insurance, with pretax dollars.
By providing benefits under a cafeteria plan, an association can provide its employees with a mechanism to avoid taxation of the employer-provided benefits. What's offered in a cafeteria plan? Why not provide a built-in cafeteria plan by giving all individual taxpayers a deduction above their adjusted gross income for health-insurance premiums, and deduct premiums from their FICA base as well?
Essentially, a cafeteria plan allows an employee to reduce their gross income, effectively reducing the amount they pay in Federal, Social Security, and some State taxes. This amounts to a savings of between 25% and 40% of every dollar they contribute to the plan. The employer also realizes savings on FICA withholding tax for each participating employee. Ask your employer about Cafeteria Plans because they save you and your company money on taxes.