Frequently Asked Questions

Q: What is the Cafeteria Plan Benefit Program?

A: It is an employer-sponsored benefit plan that allows an employee to select from a menu of available benefits, choosing those benefits that meet the employee’s specific needs. The benefits that are chosen are then paid for through a salary reduction agreement with the employer. Salary reduction means that an employee’s salary is reduced by the amount necessary to pay for the elected benefits.The salary reduction is made before taxes are withheld from an employee’s pay enabling the employee to use “pretax” dollars to pay for certain benefits.

Q: How do I benefit from participating in this Program?

A: You benefit by taking advantage of the tax savings. By participating in a cafeteria plan you increase your spendable income by reducing what you pay in taxes. Reducing the amount you pay in Federal and Social Security taxes, there is a possible savings of between 15% and 25% of every dollar you contribute to the plan.

Q: When do I enroll in the Cafeteria Plan Benefit Program?

A: You must make your benefit election annually prior to the beginning of the effective date of the benefit program plan year. The plan year is typically a 12-month period determined by your employer. The plan year may be based on a calendar year or fiscal year.

Q: Can I make changes in my election after the plan year starts?

A: You can only make changes to your elections if you have a qualifying change of status event. Some of these events include:
• Change in legal marital status
• Change in number of dependents
• Change in work status or schedule of participant or participant’s family
• Judgment decree or court order
• Significant change (25%) in premiums of a health insurance policy
•Entitlement to Medicare or Medicaid

Q: What other features are there in the plan in addition to not taxing my health and medical-related insurance premiums?

A: The plan also allows you to establish accounts to deduct unreimbursed medical expenses through a flexible spending account (“FSA”) and dependent care expenses through a dependent care account (“DCA”) from your gross pay before taxes are calculated and deducted.

Q: What is a flexible spending account(FSA) plan?

A: An FSA is a benefit provided by your employer which allows you to contribute a certain amount of your gross income to a designated account or accounts before taxes are calculated. These accounts are for unreimbursed medical expenses not covered by your insurance. You can be reimbursed throughout the plan year as you incur the expenses.

Q: What happens if I don’t incur enough expenses to get back the money deposited into my reimbursement account?

A: Any expense dollars not used for expenses are forfeited. This is what is known as the “use it or lose it” provision of Section 129. It is very important to be conservative in estimating your expenses for the plan year.

Q: Can I take the tax credit for the dependent care deduction on my income tax return if I am in this plan?

A: No. Expenses reimbursed under this plan may not be used when calculating your dependent care tax credit. Sometimes it is more advantageous to take the dependent care tax credit on your tax return than to participate in the dependent care expense reimbursement account. You should discuss which alternative is the best for you with your tax advisor.