by admin | Jul 16, 2026 | Blog
Many employers use cafeteria plans to allow employees to pay their share of group health insurance premiums with pre-tax dollars. Health Flexible Spending Accounts (FSAs) and Dependent Care Assistance Programs (DCAPs) are also common offerings. But these aren’t the only benefits that can be included.
Employers looking to enhance their benefits package may be able to add several other options to their cafeteria plan.
Health Savings Account (HSA) Contributions
Employees who are eligible for a Health Savings Account (HSA) can generally make pre-tax HSA contributions through a cafeteria plan. This can be an attractive option for employees enrolled in a high-deductible health plan who want to save for current or future healthcare expenses.
Group-Term Life Insurance
A cafeteria plan may also include employer-sponsored group-term life insurance. However, employers should be aware that the value of coverage exceeding $50,000 may be taxable to the employee, unless paid for with after-tax dollars.
Disability Coverage
Short-term and long-term disability insurance can also be offered through a cafeteria plan. These benefits help provide income protection if an employee is unable to work due to an illness or injury.
Dental and Vision Benefits
Coverage under other employer-sponsored health plans, such as dental and vision insurance, may also be included. Offering these benefits through a cafeteria plan can help employees access important preventive and routine care while enjoying tax savings.
Paid Time Off (PTO) Programs
Some employers choose to allow employees to buy or sell vacation, sick leave, or personal days through a cafeteria plan. While these arrangements can provide greater flexibility, they are subject to specific IRS requirements and should be carefully structured to ensure compliance.
Contributions to a Dependent’s Trump Account
Beginning July 4, 2026, cafeteria plans may also permit contributions to a dependent’s Trump account. However, contributions cannot be made to an employee’s own Trump account through the cafeteria plan.
Keep Compliance in Mind
Before adding new benefits, employers should understand that each option comes with its own tax and legal considerations. In addition, cafeteria plans generally cannot be used to pay or reimburse premiums for individual health insurance policies that provide major medical coverage. A limited exception may apply in certain situations involving an Individual Coverage HRA (ICHRA).
The Bottom Line
Health insurance premiums, Health FSAs, and DCAPs may be the most familiar cafeteria plan benefits, but employers have several additional options available. Expanding your cafeteria plan can provide employees with greater choice and flexibility, provided the plan is structured to comply with applicable tax and benefits rules.
Source: Thomson Reuters
by admin | May 29, 2026 | Blog
The short answer is no, you don’t file a Form 5500 for the cafeteria plan itself. But you might have to file one for the specific benefits inside it.
Think of a cafeteria plan (a Section 125 plan) like a shopping cart. The cart itself doesn’t trigger tax or reporting rules—but the items you put inside the cart might.
Here is how it works in three simple steps.
1. The “Shopping Cart” is Free (The IRS Rule)
A cafeteria plan is just a tax structure that lets employees buy benefits using pre-tax dollars. The IRS suspended the rule requiring a Form 5500 for the plan structure itself. So, you can cross the cafeteria plan itself off your filing list.
2. Check the “Items” Inside (The DOL Rule)
While the cart is exempt, the Department of Labor (DOL) cares about the actual benefits you are funding through it. These are called component plans.
You need to look at each individual benefit you offer pre-tax, such as:
- Your group health insurance plan
- A Health FSA (Flexible Spending Account)
- Dental or vision insurance
3. The “Under 100” Rule (Who actually has to file?)
Most small businesses don’t have to file a Form 5500 because of a size exemption.
- If you have FEWER than 100 participants: You usually do not have to file a Form 5500 for your benefits, as long as they are paid out of the company’s general bank account or through an insurance company.
- If you have 100 or MORE participants: You must file a Form 5500 for that specific benefit (like your main health insurance plan).
> Note: “Participants” usually means employees signed up for the plan on the very first day of the plan year. You do not count their dependents (spouses or kids).
Summary Checklist for HR
- Count your heads: Did any of your pre-tax benefits have 100 or more employees enrolled on day one of the plan year?
- If NO: You are likely exempt from filing a Form 5500 entirely.
- If YES: You must file a Form 5500 for that specific benefit plan. You’ll do this electronically using the government’s online system, called EFAST2.
Pro-Tip: If you do have over 100 employees, ask your insurance broker about a “Wrap Document.” This combines all your different benefits into one single bundle so you only have to file a single Form 5500 instead of three or four separate ones.
Source: Thomson Reuters
by admin | May 1, 2025 | Blog
Navigating cafeteria plans can be tricky for both employers and employees. A common question is whether financial hardship allows midyear election changes to health FSAs. Unfortunately, it doesn’t.
Why Financial Hardship Isn’t a Qualifying Event
IRS rules state that cafeteria plan elections are irrevocable for the plan year unless a qualifying event occurs. Financial hardship, such as buying a new house and facing unexpected expenses, does not qualify as a permitted election change event.
Qualifying Events for Election Changes
The IRS outlines specific events that allow for midyear election changes, including:
- Change in marital status
- Change in the number of dependents
- Change in employment status
- Significant cost or coverage changes (not applicable to health FSAs)
- Qualified medical child support orders
Since financial hardship does not fall under these categories, employees must wait until the next open enrollment period to make changes to their health FSA elections.
Communicating Plan Rules
To minimize confusion and potential employee relations issues, employers should clearly communicate the rules and limitations of their cafeteria plans. Providing real-life examples can help employees understand which events qualify for election changes and which do not. This proactive approach can prevent misunderstandings and ensure employees are well-informed.
Plan Design Considerations
Employers may also consider redesigning their health FSA plans to eliminate midyear election changes altogether, except in cases of qualified medical child support orders. This can simplify plan administration and reduce the challenges associated with determining coverage amounts for the remainder of the plan year.
While financial hardship is a difficult situation for any employee, it does not justify a midyear election change to a health FSA under current IRS rules. Employers can support their employees by providing clear communication about plan rules and considering plan design adjustments to streamline administration. By taking these steps, employers can help ensure a smooth and compliant operation of their cafeteria plans.
Source: Thomson Reuters
by admin | Aug 15, 2024 | Blog
Navigating the complexities of Dependent Care Assistance Programs (DCAP) can be challenging, especially when dealing with midyear election changes and nondiscrimination rules. This blog post will explore whether an employee can begin contributing to a DCAP midyear if their spouse’s contributions are cut off to avoid a nondiscrimination failure, and whether an employer can cut off an employee’s salary reductions midyear for the same reason.
Midyear DCAP Election Changes
One common scenario involves an employee who initially elected not to make DCAP salary reductions because their spouse, employed elsewhere, made a $5,000 DCAP election. If the spouse’s contributions are discontinued midyear to avoid a nondiscrimination test failure, the employee may wish to start making DCAP salary reductions. According to IRS officials, a cafeteria plan may permit this midyear election change if it allows changes due to a “change in coverage under another employer plan.”
Key Points to Consider:
- Plan Provisions: Ensure your cafeteria plan includes provisions for election changes due to changes in coverage under another employer plan.
- Employee Certification: The employee must certify that the change in coverage event occurred.
- Contribution Limits: The maximum annual DCAP exclusion for a married couple filing jointly is $5,000. Employees should not exceed this limit, considering the spouse’s contributions already made for the year.
Cutting Off Salary Reductions Midyear
Employers may also need to cut off an employee’s salary reductions midyear to comply with nondiscrimination rules. While not explicitly mentioned in IRS regulations, IRS officials have informally commented that such provisions do not violate the irrevocable election requirement.
Steps for Employers:
- Plan Provisions: Include provisions in your plan that allow the plan administrator to reduce or discontinue salary reductions to comply with nondiscrimination rules.
- Monitoring Compliance: Regularly monitor compliance with nondiscrimination rules throughout the plan year to make necessary adjustments before year-end.
Understanding and implementing midyear DCAP election changes and managing nondiscrimination compliance are crucial for both employers and employees. By ensuring your cafeteria plan includes the necessary provisions and monitoring compliance, you can navigate these challenges effectively.
Source: Thomson Reuters
