A Cafeteria Plan is a smart addition to a group health plan because it gives you a tax-free way to pay for medical care, and increase your net income through tax savings.
Cafeteria Plan Accounts
Cafeteria Plans reduce taxes and let employers help pay for medical care.
Medical, health insurance, dental and child care expenses continue to rise. Thanks to Cafeteria Plans, your employer can pay some of those costs for you, and you can save by paying some or all of those expenses with pre-tax dollars. Your employer can pay up to $500 per year for you, tax free, or can ‘match’ what you deposit into reimbursement accounts before federal, state and social security taxes are withheld. Or you can set aside up to $2,550 yourself to pay your expenses on a pre-tax basis. This reduces your tax liability, and it’s easy to use those accounts to pay for your medical, dental, vision, dependent care and health insurance expenses.
Benefits of Cafeteria Plans include…
A Great Benefits
Let us say you earn $1,500 gross per pay period, and spend $200 per pay period on insurance, dependent care or health expenses.
$1,500 Gross taxable salary, minus:
$315.00 in taxes, equals $1,185 take-home pay, minus $200 insurance, dependent, health expenses, equals:
$985 real take-home pay.
$1,500 salary, minus $200 insurance, dependent, health expenses, equals $1,300 Gross taxable salary, minus $273.00 in taxes, equals:
$1027.00 real take-home pay.
Your savings, over 26 pay periods? $1,092.00!
Using a Cafeteria Plan to pre-tax expenses is just good sense. There are a few rules, though:
- You must decide how much to pre-tax before the beginning of the Plan Year.
- Once an election is made, it can’t be changed unless a “qualified event” like a birth, death, marriage or adoption occurs.
- Use it or Lose it. Any money left in your accounts at the end of the plan year is forfeited. You must plan carefully and not put too much in your accounts!
What Kinds Of Accounts Can I Have?
Remember, the accounts are completely separate. You cannot use money from one account to cover expenses for another. Your employer may allow you to have one or all of the following account types:
Health Flexible Spending Accounts
(FSA) may be used for qualified medical expenses, including vision, dental, co-pays or prescriptions. You may be reimbursed at any time during the year for the full election for that year up to $2,550.00.
Limited Use FSA
If you have a Health Savings Account (HSA), you may also have a Limited Use FSA to cover expenses not allowed by your insurance.
Dependent Care Accounts
May be used to pay for the care of children under 12 or older dependents unable to care for themselves. The maximum pre-tax election is $5,000 per household. Reimbursement is limited to the amount that has been contributed to your account at the time the expense is submitted for payment.