What is a Cafeteria Plan?

The cafeteria plan is a benefits package that is offered by many different employers today. Here are the basics of the cafeteria plan and how it can help individual employees.

Cafeteria Plan

The cafeteria plan got its name because you basically get to choose different benefit options just like you are choosing different things on a cafeteria menu. With the cafeteria plan, you will be able to choose from a list of potential benefits such as health insurance, paid maternity leave, accident insurance, life insurance, childcare, cash benefits, paid leave or payments into retirement accounts.

Reducing Taxes

With this type of account, employees are eligible to make contributions. The employer is also eligible to make contributions to the accounts of their employees. Both the employer and the employee get to make contributions on a tax-free basis. By doing this, the individual is going to reduce their taxable income for the year. This could potentially put them in a lower tax bracket and it reduces the amount of taxes that they have to pay. For employers, they can significantly reduce the amount of payroll taxes that they have to deduct and worry about. Because of these benefits, some people refer to the cafeteria plan as a tax-advantaged benefits plan.