Cafeteria Plans Save The Company & Employees Taxes

You can reduce your Company's and employees' taxes by providing certain benefits pre-tax through a company cafeteria plan. Common benefits include tax sheltered employee portion of health insurance premiums, dependent care and medical expense flexible spending accounts. If you are currently requiring employees to cover a portion of their health premium, you should do so under a cafeteria plan. Also, employees can fund spending accounts for dependent care and out of pocket medical expenses, which is a benefit to them at no cost to the Company and, in fact, it saves the Company payroll taxes. The employee agrees to reduce their taxable pay by the amount of the benefit, which the Company pays on behalf of the employee to the provider (insurance Company, dependent care provider, etc.). This reduces the employee's taxable income and the Company's payroll taxes. These cafeteria plans must be formally established in writing and administered and Company owners cannot participate. IRS has announced it will be looking more closely at these plans in the future.