Cafeteria Plans Explained
- Health Insurance Premiums (excluding long-term care insurance)
- Accident insurance
- Adoption expenses
- Dependent-care expenses
- Group term life insurance coverage
- Health savings accounts, including long-term care services
- Flexible spending accounts (FSA)
$5,000 contribution for the year / 26 pay periods ≈
$192.31 withheld per paycheck.
|Cafeteria Plan||Non-Cafeteria Plan|
|Pre-tax Dependent Care Benefit||$192.31||$0|
|Taxes Paid at 20% Tax Rate||$461.54||$500|
In the example above, you can see that the Cafeteria plan enrollee receives a bit of a tax break per pay period. Cafeteria plans tend to reduce a person’s tax liability because expenses are taken out pre-tax. Keep in mind that unless your employer’s documentation shows otherwise, any unused funds left in the cafeteria plan at the end of the year will be forfeited.
Want to Learn More?
Determining whether to opt in to a Cafeteria plan and how much to set aside can be difficult. We can team up with you and your tax professional to discuss strategies are right for you.
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