Tax-Advantaged Benefits Plan
What it is:
Also called a cafeteria plan, a tax-advantaged benefits plan is a type of employee-benefit program recognized by section 125 of the Internal Code.
How it works (Example):
Let's assume Company XYZ employs 100 people and would like to start health insurance. It contacts an insurer and opens a tax-advantaged benefits plan. The plan allows employees to buy medical, dental and vision insurance on a pretax . Through the plan, the company also decides to adoption assistance and group term-life insurance. A flexible spending arrangement (FSA) is also a common tax-advantaged benefits plan benefit.
Company XYZ contributesto the tax-advantaged benefits plan by taking deductions from employees' salaries (those who participate in the plan). Those deductions are not subject to FICA or .
Tax-advantaged benefits plan are also called cafeteria plans because they allow employees to choose which benefits they want from the plan. They must have a written document that explains who is eligible to participate.
Why it Matters:
Tax-advantaged benefits plans allow employees to purchase benefits withthat has not been taxed. This saves a considerable amount of and helps employers retain talent.