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A Popular Benefit:
Cafeteria Plans are quickly becoming the most popular fringe benefit being
offered
to
employees today. Since laws were passed by Congress permitting Cafeteria
Plans over eighteen years ago, many major businesses have incorporated
Cafeteria Plans into their
fringe benefit packages.
-
A
Cafeteria Plan attracts and helps retain good employees
-
The
company can help their employees significantly reduce their tax liability
with a Cafeteria Plan.
-
An
employer can also recognize significant tax savings
-
A
Cafeteria Plan Does not require a change in already established fringe
benefits.
-
The
benefits resulting from a Cafeteria Plan are applicable to all business,
large or small.
What is a Cafeteria Plan?
A Cafeteria Plan is a written document which allows participating employees
to redirect qualifying expenses into “tax free” benefits. In most plans,
eligible employees have the following options:
-
To continue
receiving their normal compensation, or
-
To direct a
portion of their salary to the Cafeteria Plan to pay for qualifying benefits
(e.g., health insurance premiums, un-reimbursed medical expenses, or
dependent care expenses) on a tax-free basis
What benefits can my company include in the Cafeteria Plan?
Your plan can include all or any combination of the following:
-
Health insurance
premiums (the employee’s portion).
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Medical expenses
not covered by insurance. Typical expenses include eyeglasses, annual
physicals, plan deductible, and any co-insurance amounts not covered by the
plan.
-
Adult and
child day care expenses (the cost to care for a dependent while the employee
works, including pre-school up to but not including kindergarten).
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Other insurance
coverage, including group term life insurance premiums, individual or group
dental, disability, cancer or accident premiums
How will your company save
money? Your
company can recognize the following savings with a Cafeteria Plan:
-
FUTA and Social
Security taxes will be avoided on the amounts redirected by the
participating employees in the plan.
-
Insurance
premiums based on your employees taxable salaries, such as workers’
compensation can be reduced.
Employer Savings Chart: How will the
employer save money?
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EMPLOYER SAVINGS |
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Based on 30 Employees, Average
$2,000/mo. Salary
Before With
Cafeteria
Plan Cafeteria Plan
Employee
Salary $2,000 $2,000
Employee Cafeteria
Contribution 0 500
Taxable
Salary 2,000
1,500
FICA at
7.65% 153
115
Workers’ Comp (Average
5%) 100 75
Employee Payroll
Cost 2,253 2,190
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Monthly per Employee
Savings $60
Annual per Employee
Savings $756 |
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First Year Savings with 30
Employees: $22,680 |
Employee Saving Chart: How will
your employee save money?
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EMPLOYEE SAVINGS |
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Before With
Cafeteria
Plan Cafeteria Plan
Employee
Salary $2,000 $2,000
Tax Free Benefit
Expenses 0 0
(Redirected from salary on pre-tax
basis)
Taxable
Income 2,000 2,000
Taxes & FICA (Average
25%) 500 375
Payroll
Income 1,500 1,125
Tax Free Benefit Expense
Reimbursement 0 500
Spendable
Income $1,500 $1,625 |
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Employee Monthly
Increase $125
Annual Employee Increase w/o a
Raise: $1,500 |
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30
Employees
$45,000 |
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