what is a cafeteria plan?

[VV o n g B a]

i have to fill out some paperwork on a cafeteria plan but i don't have a good idea of what it is except its not about food. :P

[Craig]

401K ?

[VV o n g B a]

it says it has something to do with paycheck contributions, medical benefits and it saves you pre-tax money. but it's all in legalese so i can't tell much beyond that.

[Craig]

Whoops, I was off ...

:go:

http://www.twc.state.tx.us/ui/tax/cafe.html

Cafeteria and 401K Plans
The treatment of Cafeteria and 401K plans for unemployment insurance reporting purposes differs from state to state. The following discussion details the treatment of each plan in Texas.

Cafeteria Plan
A Cafeteria Plan is a formal and written employee benefit plan which is offered to all participants who are employees. Participants may choose among two or more benefits consisting of cash and statutory nontaxable benefits.

Employer Contributions:
Employer contributions used to fund the following benefits are exempt from the state unemployment tax:

1. Retirement.
2. Sickness or accidental disability.
3. Medical or hospital expenses in connection with sickness or accidental disability.
4. Death.

If employer funds were used to purchase benefits not exempted by 1,2,3, or 4 above (for example, day care, profit sharing, deferred compensation, or stock options), they are taxable and should be reported to the TWC.

Employee Contributions:
Employee contributions used to fund benefits by salary reduction or deduction from the employee's base pay would be taxable to the TWC, regardless of what they are used to purchase or provide.

401K Plan
A 401K Plan is an elective contribution and deferral to a plan containing a qualified cash or deferral compensation arrangement.

Employer Contributions:
Employer contributions into a Section 401(k) trust, which meet the requirements outlined in paragraph (a) of the Internal Revenue Code Section 401 and are exempt from income tax under Section 501(a) of the Code, are not considered taxable wages for state unemployment tax purposes.

In order to be considered exempt for state unemployment tax purposes, the employer must be able to answer yes to the following two questions:

1. Does the trust meet the requirements of Section 401(a) of the Internal Revenue Code?
2. Is the trust exempt under Section 501(a) of the Internal Revenue Code?

Employee Contributions:
Employee contributions from a salary reduction or deduction from the employee's base pay are taxable under Texas state unemployment tax laws.


E-MAIL Please e-mail questions or comments to tax@twc.state.tx.us

[VV o n g B a]

so its kinda like company insurance. my plan says it'll pay medical bills not covered by insurance. i wonder if this includes surgery like LASIK or something.

thanks man.

[lethal]

Yeah...cafeteria plans are deferments of your pre-tax income to an account specifically for a cause, such as health care or public transportation.

The money sent to this account is not subject to state and federal income taxes (but they are part of your FICA wages).

You then spend money on the specific cause, then submit receipts for reimbursement.

FOr instance, your health insurance probably does not cover LASIX or contact lens solution, etc. If you spend 120 bucks a year on contact lens solution (a health care cost), then put aside $10/month into this account, and you get it back when you submit the receipts for your contact lens solution. By doing this, you're spending pre-tax income on these expenses rather than post-tax. If you did not have this plan, you would have to spend $150 of pre-tax income on the same products since the $150 would be $120 after taxes. You save $30.

If you know you're going to spend money on certain elegible items, then it is a good idea to contribute to such an account for tax purposes.

[Faithless]

so its kinda like company insurance. my plan says it'll pay medical bills not covered by insurance. i wonder if this includes surgery like LASIK or something.

thanks man.
Pick and choose medical plan. You only get so many "health benefit dollars" to spread out between plans and stuff in the plans.

It forces you to choose where you want to put the most emphasis on, health benefit wise. But being what they are, cafeteria plans, most of the time, don't allow you spread out your "health benefit dollars" adequately amongst the things you might deem essential.

[Arex]

The big problem with these cafeteria plans is that any unused money at the end of the year is forfeited. That's crap. But assuming you utilize all your deferred money, then it's a good idea 'cause you'll end up saving a bit of moola in the end (the higher your tax bracket, the more you end up saving).

RX

[Faithless]

The big problem with these cafeteria plans is that any unused money at the end of the year is forfeited. That's crap. But assuming you utilize all your deferred money, then it's a good idea 'cause you'll end up saving a bit of moola in the end (the higher your tax bracket, the more you end up saving).

RX
Interesting question for those who feel that way:

If a union was fighting the City its members work for, on taking a cafeteria plan, would you side with the union or the City?

[Arex]

Interesting question for those who feel that way:

If a union was fighting the City its members work for, on taking a cafeteria plan, would you side with the union or the City?
Assuming that's the will of the union members and as long as the plan was optional to opt in, I say make it available.

RX