Cafeteria plans good for employees, business May 8th, 2009

Some business owners may require their employees to pay, on an after-tax basis, a portion of the cost of their health insurance coverage under the company’s health insurance plans. If so, then we strongly recommend implementing a Cafeteria Benefit Plan.  A cafeteria plan can be an important feature in your employee benefits package to help attract and retain employees as well as reducing your employer FICA liability.
What is a cafeteria plan?
A cafeteria plan is a type of employee benefit plan that permits each participating employee of the employer to choose among two or more benefits consisting of cash and qualified benefits, such as medical, disability, group-term life insurance coverage and dependent care assistance. Thus, workers may match benefits to their own needs and priorities. A plan can be as simple or as complex as the employer wants, ranging from a plan that allows only salary deferrals to pay the employee portion of health insurance, to one offering an extensive menu of benefits.
What are the tax benefits to the participating employee?
Cafeteria plans may be the most attractive way of providing certain benefits to employees. A cafeteria plan allows employees to reduce their salaries and to use the forgone amount to purchase on a pre-tax basis benefits not fully subsidized by the employer. Thus, as the employee’s salary is reduced, so is his income tax liability.
What are the tax benefits to the employer?
The employer’s contributions to a cafeteria plan are fully deductible. In addition, the employer FICA liability will be less because of the reduction in taxable employee wages.
If you are interested in implementing a cafeteria plan and would like more detailed information, please contact us and we will get you started