Cafeteria Plans (also called Section 125 plans) allow an employer to provide benefits that employees can pay for with pre-tax dollars.  The name comes from the cafeteria concept, where people can choose (and pay for) only what they want.  The employer doesn't have to pay FICA, FUTA, SUTA or workers comp, and the employees don't have to pay FICA, Federal withholding or state withholding on these benefits.  There are some catches though.  Partners and more-than-2% shareholders in S corporations are not eligible to participate themselves.  But, it is okay for an S corp or a partnerhsip to have a cafeteria plan for the employees.  Also, there's a use-it or lose-it provision discussed below.  Go to our calculator page to the cafeteria plan calculator to see how much emploees can save.   Benefits that can be made available include the following:        - Health Insurance Premiums (when the employer does offer health insurance)  There are two scenarios here.  In the first, the employer pays the full premium, and the employee pays nothing.  In this case, a cafeteria plan offers no benefits because the amount is already fully deductible for the employer and tax free to the employee.  In the second scenario, the employer provides health insurance, but doesn't pay for it all (or maybe doesn't pay for any of it), so some pay is withheld from the employee's paycheck to cover the difference.  A cafeteria plan is beneficial here because the amount withheld from the employee is completely tax free to the individual and not subject to payroll taxes for the employer.      - Health Insurance Premiums (when the employer does not offer health insurance)   There are two scenarios here as well.  In the first, an employee has his or her own individual (or family) plan which the employer is not paying for.  These costs qualify.  The second scenario is one in which an employee is covered by a spouse's plan through the spouse's work.  In that case, anything that the spouse pays toward the premiums with after-tax dollars (meaning the spouse's employer doesn't have cafeteria plan) also qualifies as out of pocket medical expenses.  The only thing that doesn't work is for both spouses to deduct the same premiums under two different cafeteria plans.      - Out of Pocket Medical Expenses include almost anything under the sun, like payments made to doctors and dentists, payments toward deductibles, costs of prescriptions, eyeglasses, lasik surgery, plastic surgery, and over the counter medicines, to name a few.  If it's a medical expense, it almost always qualifies.  The down side is that it is a use-it or lose-it benefit.  The employee needs to anticipate how much in the way of benefits he or she will need for the next year.  If the employee doesn't use that much, then the employer gets to keep the money!  Many employers are willing to refund the excess in the form of a taxable bonus to the employee which is perfectly legal.  This encourages the employee to participate without risk.  Out of pocket medical expense monies are often administered by issuing each employee a benefits debit card that can be used at doctors and dentists offices, hospitals and pharmacies.  (Other expenses are reported online.)      - Dependent Care Benefits are the costs of child care, elder care, or the care of a disabled adult dependent.  This benefit is limited to $5,000 in a claendar year.   Costs.  Cafeteria plans can sometimes be free.  Some health insurance companies will set up and administer a POP (Premium Only Plan) for free.  That means that the only benefit offered is health insurance.  For a more rubust plan, contact The Harding Group for a quote.  Plans usually run from $400 - $600 per year, depending on the number of employees.  You can use our flexible spending account calculator to make sure the plan is cost effective for your business.