Pre-tax Fringe Benefits — Cafeteria Plans

At the Allday Consulting Group, our Financial Advisors can help reduce the burden of rising health insurance costs and the cost of day care, by having Uncle Sam pick up part of the cost.We can help your employees reduce the cost of day care by having Uncle Sam pick up part of the cost. This is done by way of using “pre-tax” payroll deductions for health insurance and day care expenses. This “tax-shelter” is known as a Section 125 Cafeteria Plan (named after section 125 of the Internal Revenue Service Code). Cafeteria plans are also referred to by many names including flexible spending accounts (FSAs), choice spending accounts, section 125 plans, and/or reimbursement accounts.

A Cafeteria Plan is a pre-tax fringe benefit that enables both the employer and the employee to purchase health care and day care on a pre-tax basis, thus reducing their total costs for benefits. Implementing a Cafeteria Plan will save both your company and your employees money while providing a convenient way to pay for certain expenses with before-tax dollars.

Because of rising health care costs, many employers have had to shift the burden of these rising costs to the employee through higher deductibles and co-payments. Implementing a Cafeteria Plan will help re-coup some of the higher deductibles and co-pays.

With a Cafeteria Plan in place, an employee is allowed to pay for his/her group health premiums, and other insurance (such as disability and long-term care), unreimbursed medical costs (such as prescriptions and co-pays), child and dependent care costs and more….. all with tax-free dollars.

A Cafeteria Plan will allow your employees to save social security (FICA), federal, and state taxes while immediately saving you, the employer, social security (FICA), federal unemployment taxes (FUTA), state unemployment taxes (SUTA), and workers compensation taxes. A cafeteria plan is a win-win situation for both the employer and employees.

Here is an example of how a Cafeteria Plan can save taxes for you and your employees:

The primary ways to reduce taxes through a cafeteria is by paying the following personal expenses on a “pre-tax” basis:

  • Health Insurance Premiums

  • Out-of-Pocket Medical Expenses, such as deductibles, co-payments, prescriptions and other costs that are not paid for by health insurance

  • Dependant Care

  • Disability Insurance

  • Long Term Care Insurance

Cafeteria Plans Frequently Asked Questions

Allow us to put our expertise and experience to work for you. If you use our firm to handle your health insurance needs, once the cafeteria plan is established, we will provide all of the administration at not cost to you. Contact us today so we can further discuss how a Cafeteria Plan will increase your bottom line.

What are the benefits of a cafeteria plan?

  • Reduces Your Company’s Payroll Tax Burden — You'll reduce your company’s matching Social Security and Medicare taxes. You’ll also lower the amount you pay for workers compensation insurance, federal unemployment taxes (FUTA), and state unemployment taxes. This total savings usually amounts to more than 10% for every dollar your employees run through the cafeteria plan.

  • Improves Your Total Benefits Package — Offering a cafeteria plan to your employees will give your company a “competitive-edge”. It will provide your existing employees and new recruits a more complete benefits package. This will improve employee morale, reduce employee turnover and attract more qualified employees to your company.

  • Increases Employee “Take-Home” Pay While Reducing You Overhead Costs – Due to the way the tax laws are currently structured, most employees are not able to deduct the cost of health care, doctor visits, hospital stays, prescriptions, dental care, dependent care, disability insurance or insurance for long-term care. A cafeteria plan will allow your employees to “pass-on” a big part of these to Uncle Sam. This is accomplished by providing your employees with a means by which they can pay for these expenses on a “Pre-Tax” basis.

  • Peace of Mind — By offering a cafeteria plan to your employees, you’ll have “Peace-of-Mind” by knowing that you are giving your employees a “much-appreciated” benefits package. And, by hiring a professional firm to handle the cafeteria plan administration, you'll have the piece of mind in knowing that your company is compliant with the IRS regulations.
Your employees are an integral part and valuable resource for your company. Give your employees a raise AND LOWER your company’s taxes. Let us set up a cafeteria plan for your company. It’s a “WIN-WIN” situation for you and your employees.

Who can establish sponsor a cafeteria plan?
Any business can establish a cafeteria plan for its employees, regardless of size of the business. This includes Corporations (S-Corporations" and C-Corporations"), Partnerships, Nonprofit Organizations, Government entities, Limited Liability Companies (LLCs), and even Sole Proprietorships Owners of small business often think that a cafeteria plan is only for larger companies. They often think that the cost of setting up and maintaining a cafeteria plan is too expensive. This is far from the truth. As a matter of fact, the cost is very minimal. The taxes saved from having a cafeteria plan exceed the cost of maintaining it. And if you use our firm to handle your health insurance needs, once the cafeteria plan is established, we will provide all of the administration at not cost to you.

Who can participate in a cafeteria plan?
All employees of any business that has a cafeteria plan can participate in the cafeteria plan, with the following exceptions:

  • Self-employed individuals (but they can establish a plan for their employees)

  • Partners in a partnership (but the partnership can establish a plan for their employees)

  • An owner of an “S-Corporation” who has more than a 2% ownership interest.

  • Owners of a “C-Corporation” can participate in a cafeteria plan but cannot contribute more than 25% of the total contributions in the plan.

What are the tax advantages?

Below is an example of taxes that will be saved for just ONE EMPLOYEE who works for a company with a cafeteria plan.

Sample Company Tax Savings using a CAFETERIA PLAN On a Single Employee Actual
Tax Savings Employee Tax Savings Employer
Annual Health Care Costs $5,000 - -
Day Care Costs $3,000 - -
FICA Tax Savings - $612 $612
FIT Savings (Assuming 15% Tax Bracket) - $1,600 -
SIT Savings (Assuming 4% Tax Bracket) - $320 -
FUTA & SUTA Savings (Assuming Combined 3%) - - $210
Total Taxes Saved on Just One Employee - $2,532 $822
Total Cost Before Taxes $8,000 100% -
Less Combined Tax Savings (Amount Paid by Uncle Sam) $(3,354) -42% -
"After-Tax" Cost $4,646 58% -

Your company’s actual tax savings will vary depending upon the number of employees participating in the plan and the benefits that are deducted pre-tax. The taxes saved by your employees will vary based upon their individual tax bracket

What are the costs for setting up and maintaining a cafeteria plan?
The cost of setting up and maintaining a cafeteria plan is way less than the money that will be saved on payroll taxes. AND, AS A CLIENT OF THE ALLDAY CONSULTING, THE COST IS VIRTUALLY FREE.

Here is an example of the costs normally charged for setting up and maintaining a cafeteria plan and what it would cost if set up and maintained by the ALLDAY CONSULTING GROUP:

|------------- NORMAL FEES -------------|  FEES PAID BY
Services With a Flexible Spending Account Without a Flexible Spending Account Clients of the Allday Consulting Group
Initial Setup Fee $500.00 $350.00 $250.00
One-Time Setup per Employee $15.00 $5.00 FREE
Monthly Admin Fee Per Participant $3.00 None FREE
Monthly Minimum Fee $50.00 $25.00 FREE
Annual Preparation of Form 5500 $250.00 $150.00 FREE

(Example: ABC Company with 20 employees):
One-Time Setup Fee:
Initial Setup Fee for ABC Company $500.00 $350.00 $250.00
Initial Setup Fee per Employee $300.00 $100.00 FREE
Total Setup Fee $800.00 $450.00 $250.00
Monthly Fee:
Monthly Administrative Fee $60.00 $25.00 FREE
Annual Fee:
Annual Preparation of Form 5500 $500.00 $250.00 FREE

The Allday Consulting Group, LLC
2901 N. Causeway Blvd. Ste. 301 | Metairie, LA 70002
Phone: 504-835-4213 | Fax: 504 834-8218 | Email:
Toll Free Phone: 1-800-259-4213

Serving New Orleans LA, Metairie LA, Baton Rouge LA, Covington LA, Slidell LA, Mandeville LA, Lafayette LA, Miami FL, Loganville GA, Albuquerque NM, Sherman Oaks CA, Los Angeles, CA
Copyright(c)2005-2020 The Allday Consulting Group, LLC, All Rights Reserved