What Is A Cafeteria Plan?

3/15/2026

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.

It is the only method whereby employees can pay their share of benefit costs on a pre-tax basis.

Example: A family in the 30% tax bracket that pays $1,500 a year for child care and that qualifies for a dependent care account would save $1,500 (30% of their $5,000 annual payment) by paying its qualified dependent care expenses with a Cafeteria Plan arrangement.