This cafeteria plan as provided for in section 125 is consistent with the above rules. The written plan must describe all benefits in concrete terms and establish rules on eligibility for participation and elections. No no. Staff can only be reimbursed on the basis of proof of eligible and documented expenses incurred during the planning year. For example, an employer with a cafeteria plan year that ends December 31, 2014 has an X employee who has chosen a $1,000 salary reduction for a health FSA for the year of the plan that ends on December 31, 2014. As of December 31, 2014, X used 200 $US in its health FSA. X chose a salary reduction for a health FSA of 1,500 $US for the planned year that ended December 31, 2015. During the grace period [for the year 2014] from January 1 to March 15, 2014, x $300 of unpaid medical care is required. The unused $200 of the planning year, which ends December 31, 2014, will be used to pay or reimburse $200 of X`s $300 in medical expenses during the additional period. As a result, for the planning year, which ends December 31, 2014, as of March 16, 2015, there were no unused benefits or contributions. The remaining $100 in medical expenses incurred between January 1 and March 15, 2006 will be paid or reimbursed by x` Health FSA for the planning year ending December 31, 2015. On March 16, 2015, X still has $1,400 in the Health FSA for the planning year ending December 31, 2015.
If the HSA is not part of a cafeteria plan, an employee`s contributions after tax can continue to be deducted from his tax return. Salary reduction agreements are the basis of Section 125 “Cafeteria Plans,” which give the employee the choice between taxable income and a tax-free benefit. A cafeteria plan is a separate written plan, managed by an employer for employees, that meets the specific requirements and requirements of section 125 of the internal tax code. It offers participants the opportunity to obtain certain pre-tax benefits. Participants in a cafeteria plan must be allowed to choose between at least one taxable benefit (for example. B cash) and a qualified benefit. Watch our COVID-19 and Geek Out task! Impact page on your cafeteria plan. These types of plans are heavily regulated by the Internal Revenue Service and must be adopted and managed in accordance with detailed federal regulations. For example, there are rules governing the circumstances under which participants can make electoral changes in the middle of the year; The nature of the fees that can be reimbursed and complex rules to ensure that the plan does not discriminate in favour of highly compensated individuals and key workers.
Failure to comply with existing rules may result in disqualification from the plan and/or significant tax consequences for employers and workers. Legal advice should be sought prior to the adoption of this type of plan, before changes to the plan are adopted, and in the event of problems related to the management of the plan.