Legal Definitions - cafeteria plan

A cafeteria plan is a type of employee benefit program that allows employees to choose from a list of benefits offered by their employer. The Internal Revenue Service (IRS) requires that a cafeteria plan must offer at least one taxable benefit and one qualified, or nontaxable, benefit.

For example, an employee may choose to receive a portion of their salary as cash, which is taxable, or they may choose to receive accident and health benefits, which are nontaxable. The employee agrees to give a portion of their salary on a pre-tax basis to pay for the qualified benefits.

However, the salary reduction contributions are not actually received by the employee. Instead, they are used to pay for the chosen benefits.

A cafeteria plan is a way for employers to offer a variety of benefits to their employees while also providing tax advantages. It allows employees to customize their benefits package to fit their individual needs.