Cafeteria plan refers to a type of employee benefit plan in which an employer offers employees a set of different taxable and non-taxable benefits.
Cafeteria plan definition
Cafeteria plan refers to a type of employee benefit plan in which an employer offers employees a set of different taxable and non-taxable benefits. The employee is able to choose which benefits would fit their individual needs.
The name comes from the earliest types of these plans that allowed employees to choose between different types of benefits, just like a customer chooses among available items in a cafeteria. When cafeteria plan discriminates in favor of highly compensated employees, they need to report their cafeteria plan benefits as income.
Benefits of the cafeteria plan
Cafeteria plan includes taxable benefits like cash and stock.
The non-taxable benefits include health insurance, vacation days, dental care, vision coverage. The IRS set a number of restrictions to ensure fairness and limit the number of changes an employee can make to the plan.