A cafeteria plan is something maintained by employers for their employees. It has to satisfy requirements set forth by section 125 within the Internal Revenue Code. Employees are allowed to receive specific benefits that are pre-taxed, and employees are permitted to choose one qualified benefit and one taxable benefit, which would include simple cash. Qualified benefits include adoption assistance, a health savings account, health benefits and other items. The plan the employer shows to workers must lay out all of the rules for eligibility and describe, in detail, the benefits being received. Cafeteria plans are paid for by salary reductions from the employer and employee, and since employee contributions are not actually being received by the worker, it is not viewed as wages for income taxes.
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