TN 25 (03-12)

Citations:

Social Security Act, Section 209(a)(4)(I)

A. Definition of cafeteria plan

A cafeteria plan under Section 125 of the Internal Revenue Code (IRC) is a plan where:

• All participants are employees, and

• Participants can choose from a menu of two or more cash or qualified benefits.

NOTE: The 1984 Amendments (P.L. 98-369) introduced and used the term “statutory nontaxable benefits”, instead of qualified benefits. The 1986 Reform Act (P.L. 99-514) substituted the current “qualified benefits” for statutory nontaxable benefits.

B. Policy for exclusions based on Section 125

1. Exclusion under the Act

Section 209(a)(4)(I) excludes from wages any payment under a cafeteria plan (within the meaning of Section 125 of the IRC) if:

• You exclude this type of payment from wages outside the provisions of a cafeteria plan, that is, you would exclude the payment under any section of 209(a)-(k), and

• You would not consider such payment as being constructively received under Section 125 of the IRC, see RS 01402.030B.

2. How to treat “cash” under a cafeteria plan

Cash offered under a cafeteria plan does not affect the exception to constructive receipt. However, cash payments selected in lieu of qualified benefits are wages.

3. Qualified benefits

Employee contributions to a cafeteria plan to fund a qualified benefit plan are not wages.