The Catholic University of America

Summary of Federal Laws

Tax

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Manager of Benefits and Compensation

Related Policies

Benefits

Tax Issues Related to Employment

Cafeteria Plans 26 USC § 125; 26 CFR 1.125

A cafeteria plan is a written plan document that allows employees to exclude from gross income certain types of employer provided benefits, such as accident and health insurance, group term and life insurance, and benefits under a dependent care assistance program. Qualified scholarships or tuition reduction, educational assistance or deferred compensation may not be excluded from income. The cafeteria plan must be in writing and made pursuant to a salary reduction agreement. Nondiscrimination rules apply and an annual return for the plan must be filed.

Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay.

See 26 CFR § 1.125-3 for the effect of the Family and Medical Leave Act (FMLA) on the operation of cafeteria plans.

Resources

Sample Summary Plan Description for a Cafeteria Plan (Ole Miss)

Employer Comparable Contributions to HSAs

Employer's Tax Guide to Fringe Benefits

Deduction Descriptions (University of Minnesota)

Q and A

Question: Why are employee contributions for some dental plans withheld as after tax deductions, while contributions for other dental plans are withheld as pretax deductions?

Answer: Only those dental plans that are employer funded can be treated as pretax deductions under Section 125 of the Internal Revenue Code. Thus, stand alone or free standing dental plans purchased by the employee must be treated as after tax deductions with respect to employee contributions.

 

CCR updated CFR links 5/19/15