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A cafeteria plan - also known as a Section 125 plan, after the portion of the IRS code that regulates the plans - lets employees redirect part of their salaries and wages to pay for certain benefits.
A cafeteria plan or cafeteria system is a type of employee benefit plan offered in the United States pursuant to Section 125 of the Internal Revenue Code. [1] Its name comes from the earliest versions of such plans, which allowed employees to choose between different types of benefits, similar to the ability of a customer to choose among available items in a cafeteria.
The "plan year" is commonly defined as the calendar year, but could also include the grace period of Jan 1 – March 15 of the following year. For example, the "plan year" (or "benefit year") of 2016 would run from Jan 1, 2016, until March 15, 2017, if the employer offered the grace period.
Flexible Spending Accounts (FSAs), commonly referred to as “Section 125” plans or “Cafeteria” plans, were developed as part of Internal Revenue Code Section 125 to provide employees with tax relief for their un-reimbursed medical and dependent day-care costs.
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American corporations often offer cafeteria plans to their employees. These plans would offer a menu and level of benefits for employees to choose from. In most instances, these plans are funded by both the employees and by the employer(s). The portion paid by the employees is deducted from their gross pay before federal and state taxes are ...
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Health benefits provided by employers are also tax-favored: Employee contributions can be made on a pre-tax basis if the employer offers the benefits through a section 125 cafeteria plan. Workers who receive employer-sponsored health insurance tend to be paid less in cash wages than they would be without the benefit, because of the cost of ...
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related to: section 125 cafeteria plan rules