Cafeteria Plan

• A cafeteria plan is when an employee can specifically pick the types of insurance he wants. It is a cafeteria plan, because like a cafeteria, the owner of the plan can pick and choose only what he wants.
  
  

Taxability of Cafeteria Plans

• Section 125(a) specifically eliminated cafeteria plans from income.
  
  

Number of Choices to Qualify as Cafeteria Plan

• A cafeteria plan needs two or more choices of benefits to be a cafeteria plan.
  
  

High-Ranking Employees Exception

• If only highly compensated or high-ranking employees are able to receive the plan, then the plan is income and taxable on the employee's income tax return.
  
  

Income for High-Ranking Employees

• A cafeteria plan is income for a high ranking employee or highly compensated employee if the plan discriminates against lower-ranking employees. The plan is income in the year that the plan year ends.