How A Cafeteria Plan Works For You
By electing to participate in your Company's Cafeteria Plan, you will be able to pay for
expenses that you currently pay for with after-tax dollars with before-tax dollars.
Here is how one employee increased his/her monthly take-home pay by $36 through
participation in a Cafeteria Plan.
| |
Without
Plan |
With
Plan |
| Salary |
$2,000 |
$2,000 |
| To Cafeteria Plan |
$0 |
$100 |
| Taxable Salary |
$2,000 |
$1,900 |
| Income Tax (28%) |
($560) |
($532) |
| Social Security(7.65%) |
($153) |
($145) |
| Salary After Taxes |
$1,287 |
$1,223 |
| Medical Expenses |
($100) |
($100) |
| Take-Home Pay |
$1,187 |
$1,123 |
| Reimbursement From Plan |
$0 |
$100 |
| Net Take-Home Pay |
$1,187 |
$1,223 |
What is a Cafeteria Plan?
It is a voluntary plan that provides you with the choice of receiving your full compensation in cash or to convert part of our compensation into tax-free benefits.
If I elect to redirect my compensation, how can this benefit me?
The biggest advantage is the tax savings. Since a Cafeteria Plan uses pre-tax dollars for reimbursement of qualified expenses, you reduce your income taxes and social security tax by reducing your taxable salary.
If I redirect part of my pay, won't I make less money?
No. Your net take-home pay will increase by the amount of tax savings.
Why should I participate in the Cafeteria Plan if I already have medical/dental insurance?
The Cafeteria Plan offers reimbursement of medical and dental expenses not reimbursed by insurance or for eligible dependents not covered by insurance.
What documentation do I need to provide to be reimbursed for expenses I incur?
The company will provide you a request form. You will be required to attach an itemized bill from the medical, dental or dependent care provider.
What if I don't use all of the money I redirect?
Careful review of expenses before making an election can minimize or eliminate any unused
benefits at the end of the year. However, if you do have funds elected but unused at the end of the year, the law requires that they be forfeited.
How does it Work?
Can I change or revoke my elections during the plan year?
Yes, if there is a material change in your circumstances. This includes marriage, divorce, death of a spouse or child, birth or adoption of a child, termination or commencement of a spouse's employment.
What are some examples of qualified Dependent Care expenses?
Expenses necessary for you or you and your spouse to be gainfully employed. Expenses paid to a dependent care center or care provider. Expenses paid for care of a dependent under age 13 or expenses paid for care of a dependent who is physically or mentally incapable of caring for himself/herself.
What are some examples of qualified un-reimbursed medical or dental expenses?
Only expenses not reimbursed by insurance can be claimed such as; Co-pays for physician services, hospital stays,
prescriptions, eyeglasses, contact lenses, maintenance solutions, deductibles and co-insurance, chiropractic services,
psychological therapy, transportation and travel expenses relative to medical treatment, dental caps,
crowns and orthodontia. |
