Cafeteria Plans allow employees to elect “qualified benefits” offered by their employer, and those qualified benefits may be paid for with pre-tax contributions by employees. Employees generally save on state income taxes, federal income taxes, and FICA taxes (i.e., Medicare and Social Security taxes). Employers also reduce their FICA taxes when a Cafeteria Plan is in place, so it is usually a win-win for all parties.

So, what are the qualified benefits that can be offered under a Cafeteria Plan? The following list illustrates some of the benefits that can be paid with pre-tax contributions by employees. This list is not intended to be an exhaustive list.

• Group health insurance
• Group dental insurance
• Group vision insurance
• Health Flexible Spending Account (Health FSA) contributions
• Dependent Care Flexible Spending Account (DC FSA) contributions
• Health Savings Account (HSA) contributions
• Accidental Death & Dismemberment (AD&D) coverage
• Adoption assistance benefits
• COBRA coverage for the employee, their spouse, or their dependent children (to the extent there is compensation that can be withheld pre-tax from the employee)
• Paid time off (PTO) days
• 401(k) contributions

The following list illustrates some of the benefits that can be paid with pre-tax contributions by employees, but there are some caveats to consider. This list is not intended to be an exhaustive list.

• Short-term disability (STD) and Long-term disability (LTD) insurance – Disability insurance benefits are taxable to employees if the premiums are paid with pre-tax contributions.
• Hospital indemnity and cancer insurance – Benefits paid in excess of unreimbursed medical expenses are taxable to employees if the premiums are paid with pre-tax contributions.
• Group term life insurance – Up to $50,000 of coverage may be paid with pre-tax contributions. If amounts in excess of $50,000 in coverage can be paid with pre-tax contributions, the value of coverage is imputed as income to employees and subject to taxes according to a table created by the IRS.

As a best practice, employers may want to have these plans paid with after-tax employee contributions.

The following list illustrates some of the benefits that cannot be paid with pre-tax contributions by employees through a Cafeteria Plan. This list is not intended to be an exhaustive list.

• Individual Marketplace coverage
• Commuter benefits (though can be offered pre-tax under a different provision of the IRS Code)
• Group life insurance that provides permanent benefits or a return of premium feature
• Group life insurance benefits of non-employees (e.g., spouse or children of the employee)
• Long-term care insurance
• Medicare premiums (generally cannot due to Medicare Secondary Payer rules)
• Pre-paid legal services
• Short-term medical insurance