A Cafeteria Plan, also known as an IRS Section 125 Plan, is an employer-sponsored benefit plan which allows employees to use pre-tax earnings on qualified expenses. Employees save money while tailoring the plan to their own needs, and the employer also saves. Once it’s set up, the administration of the plan for a small business can be fairly easy. Depending on the plan, the pre-tax earnings can be used for:
- health insurance premiums
- premiums for supplementary insurances, such as disability insurance
- qualified health care expenses
- qualified dependent care expenses.