A cafeteria plan is simply a Program that employers can use to help employees pay for certain expenses, like health insurance and dependent care, with pre-tax dollars. These plans are one of the most popular benefits around, for good reason. Employees like cafeteria plans because they can buy benefits with pre-tax dollars, giving them more take-home pay. They also get to pay for the benefits they really want (like ordering lunch a la carte instead of being stuck with the blue plate special - hence the name “cafeteria”). Employers like cafeteria plans because, in addition to having happier employees, they also save on taxes. And once everyone gets the initial hang of it, cafeteria plans are easy to understand and operate.
Here are three (3) major parts to a cafeteria plan:
- The simplest form of a cafeteria plan is a premium payment plan, also known as a premium–only plan (POP). It is designed for one purpose: to help employees save money by letting them pay for their share of insurance premiums with pre–tax dollars.
- A “health FSA” refers to a medical reimbursement plan that is a “flexible spending arrangement” (FSA). An FSA is a program that gives employees coverage under which certain expenses may be reimbursed, subject to certain maximum amounts and reasonable conditions. Employees can use a health FSA to pay for medical expenses that can’t be reimbursed through insurance or any other arrangement. Insurance co-pays, deductibles, eyeglasses and orthodontia are common examples of health FSA expenses. (Note: Health FSAs are not allowed to reimburse insurance premiums.)
- A “DCAP” is a dependent care assistance program that is also an FSA. An employee can use a DCAP to be reimbursed for employment-related expenses that allow the employee and his or her spouse to be “gainfully employed.” Employment-expenses apply only to certain individuals. Typical DCAP expenses are those incurred to have a baby-sitter or daycare provider take care of an employee’s child (under the age of 13) while Mom and Dad are both working or to take care of an employee’s relatives who are tax dependents and who are incapable of self-care.
|
