August 12, 2021
Have you heard of Cafeteria plans yet? Cafeteria Plans are also known as Section 125 Plans as they are based on Section 125 Internal Revenue Code. A Cafeteria plan refers to a type of employee benefit plan where an employer offers employees combination of both taxable and non-taxable benefits as part of the employee’s compensation. Currently they are offered specifically in United States.
Cafeteria plans enable employees to receive and pay for benefits on a pretax basis. It means, the benefit amount is withheld from the employee’s compensation before taxes thereby reducing the employee’s taxable wages and increasing their net pay.
Cafeteria Plans have recently become really popular. Employees appreciate the plan because they can purchase benefits with pre-tax dollars, which results in an increase in their take-home pay. Employers like Cafeteria Plans because they also save on taxes. This type of compensation helps employers attract the best employees.
Cafeteria Plan Benefits