A cafeteria plan (Internal Revenue Code Section 125) lets employees choose among qualified benefits and pay for many of them with pretax payroll deductions. “Cafeteria” means you pick from a menu—health premiums, flexible spending accounts, sometimes life or disability options—not that every workplace offers the same dishes.
You will see elections during open enrollment and line items on the stub. Stub decoding: How to read your pay stub. Account rules: HSA and FSA basics and Flexible spending account rules.
What usually sits on the menu
| Benefit | Pretax under a typical §125 plan? | Notes |
|---|---|---|
| Employer medical / dental / vision premiums (employee share) | Often yes | Reduces taxable wages for federal income tax and usually FICA—confirm your plan |
| Health FSA | Yes, if offered | Use-it-or-lose-it rules; grace period or limited rollover may apply |
| Dependent care FSA | Yes, if offered | Separate from health FSA; see Dependent care FSA |
| HSA contributions (via payroll) | Often pretax when paired with an HDHP | HSA has different ownership/portability than FSA |
| Group term life / disability | Sometimes | Imputed income rules can apply above certain life coverage levels |
| 401(k) deferrals | Separate Code section | Retirement deferrals are not “cafeteria” elections even when deducted from the same paycheck |
Open enrollment timing: Health insurance open enrollment. High-deductible pairing: High-deductible health plans.
Worked example: pretax premium + FSA
Priya’s gross biweekly pay is $2,400. Without a cafeteria election, taxable wages for federal income tax are roughly the full amount (ignoring retirement deferrals). She elects:
- Medical premium employee share: $90 biweekly pretax
- Health FSA: $50 biweekly pretax ($1,300/year pace—confirm IRS annual caps for your year)
Those $140 come out before federal income tax withholding. At a combined 22% federal marginal rate (illustrative), the income-tax savings on $140 is about $30.80 per paycheck before state tax effects. FICA treatment depends on the benefit type—premiums and FSAs often reduce Social Security/Medicare wages too; verify on the stub and plan SPD.
Priya still must spend FSA dollars on qualified expenses or risk forfeiture under plan rules. Tax filing overview: Filing taxes for beginners.
Mid-year changes and common mistakes
- Qualifying life events (marriage, birth, loss of coverage) may allow mid-year election changes; “I changed my mind” usually does not.
- Double-dipping: You generally cannot pay the same expense from an FSA and also deduct it again on your return, or pay it from HSA and FSA improperly—keep receipts.
- Ignoring the SPD: The summary plan description beats hallway rumors about rollovers.
- Assuming HSA = FSA: HSAs are portable individual accounts; FSAs are employer plans with stricter timing.
Dependent care vs child tax credit tradeoffs belong in tax software or a preparer conversation; this site stays educational.
Checklist
- Download this year’s benefit guide and Section 125 / cafeteria SPD before clicking enroll.
- List premiums, FSA, dependent care FSA, and HSA elections separately with annual totals.
- Confirm which deductions are pretax on a sample pay stub after the first post-enrollment paycheck. Broader deduction map: Paycheck deductions basics.
- Set calendar reminders for FSA claim deadlines and open enrollment.
- Keep receipts for every FSA/HSA reimbursement.
- After a job change, ask HR what happens to unused FSA balances and COBRA options.
Educational only. Not tax, legal, or benefits advice. Plan documents and IRS limits control; employers and years differ.