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taxation law questions Ronald J. Cappuccio, J.D.,LL.M.(Tax) Lawyer and Business Attorney

 Ronald J. Cappuccio,
J.D., LL.M.(Tax)
Counsellor at Law
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Cafeteria Plans


A Cafeteria Plan (which also includes Flexible Spending Accounts) allows a business's employees to choose between receiving wages and taxable benefits, or to have qualified non-table benefits. The advantage of a qualified Cafeteria Plan is even though an employee may choose cash or another taxable benefit, if the employee instead receives the qualified benefit it is not taxable income. 

Typical Qualified Benefits include:

Health Savings Accounts

Group term Life Insurance

Dependent Care Assistance

Adoption Assistance

Accident Benefits

Health Benefits

Educational Assistance (tuition reimbursement)

Meals on the Employer's premises

Moving Costs

Purpose of a Cafeteria Plan

 The purpose of a  IRC Section 125 cafeteria plan is to provide tax advantage choices for employees.  The employer gets a tax deduction and the employee does not have to include the benefit into income. The IRS issued Regulations  in 2007 which completely revised and updated the 1986 Regulations.

The Regulations tax effect January 1, 2009.  All cafeteria plans should be reviewed and will need to be re-written. The plan must:

be in writing

list the beneficiary classes and interests

list eligibility of employees

describe all benefits

list the maximum benefits

list the  amount of elective contributions.

Highly Compensated Employees

 Cafeteria Plans have restrictions against favoring "highly compensated" employees. These restrictions are similar to the Qualified Retirement Accounts.



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