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A Cafeteria Plan is designed to provide you with flexibility and choice in how you manage your tax affairs. The term cafeteria originates from the concept of choice, the name coined to parallel the variety of choices available in a cafeteria.
Cafeteria Plan is an employee benefit plan, details of which can be found in section 125 of the Internal Revenue Code. In simple terms, the Cafeteria Plan enables employees to build their salary package to suit their needs. Different elements of that salary package can then be taxed/accounted for in different ways.
A cafeteria much provide a minimum of 2 benefits which can be either qualified benefit plans or cash benefits.
Subject to gross income exception rules, Cafeteria plans benefit you by allowing you to flex your salary and benefits package in order to make your earnings effective and relevant to your lifestyle.
You can calculate how cafeteria plans affect your tax payments here, simply select the advanced tax calculator and enter your cafeteria plan details