What is a Cafeteria plan?

A cafeteria plan is a written employer plan under Section 125 that lets employees choose between taxable cash and qualified benefits. When elections are made before the coverage period, and the plan is operated as written, qualified benefits can reduce federal income tax withholding and certain payroll taxes. Employers use the files to prove eligibility, election timing, benefit choices, W-2 treatment, and nondiscrimination review. A simple plan keeps benefits limited, payroll coding clear, and year-end reporting tied to employee elections, including references to Health reimbursement arrangement references.