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February 18, 2009

Cafeteria Plan

Your Guide



A written plan-offered by an employer- that allows employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. A cafeteria plan includes a flexible spending arrangement.

Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay.

Referring Cite

IRC § 125, IRS Publication 15-B

Additional Helpful Information

Qualified benefits include the following

    • Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance).
    • Adoption assistance.
    • Dependent care assistance.
    • Group-term life insurance coverage (including costs that cannot be excluded from wages).
    • Health savings accounts (HSAs). Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services.

A cafeteria plan cannot include the following benefits

    • Archer MSAs.
    • Athletic facilities.
    • De minimis (minimal) benefits.
    • Educational assistance.
    • Employee discounts.
    • Lodging on your business premises.
    • Meals.
    • Moving expense reimbursements.
    • No-additional-cost services.
    • Transportation (commuting) benefits.
    • Tuition reduction.
    • Working condition benefits.
    • Scholarships or fellowships

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