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LSDefine
Simple English definitions for legal terms
cafeteria plan
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A quick definition of cafeteria plan:
A cafeteria plan is a program that lets employees choose from a list of benefits offered by their employer. These benefits can include things like health insurance, retirement plans, and even cash. The employee agrees to have a portion of their salary taken out before taxes to pay for the benefits they choose. This means they pay less in taxes and can save money. The government has rules about what benefits can be offered and how the program works.
A more thorough explanation:
A cafeteria plan is a type of employee benefit program that allows employees to choose from a list of benefits offered by their employer. The Internal Revenue Service (IRS) requires that a cafeteria plan must offer at least one taxable benefit and one qualified, or nontaxable, benefit.
For example, an employee may choose to receive a portion of their salary as cash, which is taxable, or they may choose to receive accident and health benefits, which are nontaxable. The employee agrees to give a portion of their salary on a pre-tax basis to pay for the qualified benefits.
However, the salary reduction contributions are not actually received by the employee. Instead, they are used to pay for the chosen benefits.
A cafeteria plan is a way for employers to offer a variety of benefits to their employees while also providing tax advantages. It allows employees to customize their benefits package to fit their individual needs.