Generally speaking, Cafeteria Plans allow employees to pay their share of insurance premiums, certain out-of-pocket medical and dependent care expenses, and certain other benefits with pre-tax dollars versus paying these same expenses with after-tax dollars.
Thus, the employee saves federal income taxes and FICA taxes on the total amount paid through a Cafeteria Plan. And, in all states except New Jersey, the employee also saves state income taxes on that amount, as well.
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