Overview

A cafeteria plan is a vehicle that allows employees to pay for certain benefits on a pre-tax basis. It also saves the employer money on payroll taxes (e.g. FICA). To offer benefits on a tax-favored basis through a cafeteria plan, there must be a formal plan document, and the plan must comply with §125 rules such as election irrevocability rules and nondiscrimination rules. Without a cafeteria plan in place, employees may not pay for benefits on a pre-tax basis.