3503 / What are the income tax benefits of a cafeteria plan?
In order to avoid taxation, a participant must elect the qualified benefits before the cash benefit becomes currently available. That is, the election must be made before the specified period for which the benefit will be provided begins—generally, the plan year.2
A cafeteria plan may, but is not required to, provide default elections for one or more qualified benefits for new employees or for current employees who fail to timely elect between permitted taxable and qualified benefits.3
Note that a benefit provided under a cafeteria plan through employer contributions to a health flexible spending arrangement (FSA) is not treated as a qualified benefit unless the plan provides that an employee may not elect for any taxable year to have salary reduction contributions in excess of the annual contribution cap ($3,300 for 2025 (projected), $3,200 for 2024, $3,050 for 2023 and $2,850 for 2022, as adjusted annually for inflation) made to the FSA.4