Introduction to Flexible Benefit Plans
A cafeteria plan, including a flexible spending arrangement (FSA), is a written plan that allows employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable.
FSAs allow employees to pays for uncovered or unreimbursed medical costs with pre-tax funds. FSAs are different than Health Savings Accounts (HSAs), which allow individuals and families with high-deductible health care plans to set pre-tax money aside for health expenses. Unlike an FSA, which must be spent within a certain period of time, HSAs can be rolled over from one year to the next.
Regardless of nomenclature, a cafeteria plan is a written benefit plan offered by an employer in which:
- All participants are employees; and
- Participants can choose, cafeteria-style, from a menu of two or more cash or qualified benefits.
Qualified Benefits
A qualified benefit is a benefit that IRS does not consider part of an employee's gross income. Qualified benefits include, but are not limited to:
- accident and health plans (including medical plans, vision plans, dental plans, accident and disability insurance);
- group term life insurance plans (up to limits);
- dependent care assistance plans; and...