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(c) Dependent care assistance plans;

(d) Certain stock bonus plans under Section 401(k)(2) of the IRC, but not 401(k)(1) plans.

3) Cash is not a qualified benefit.

B. Employees can participate in Cafeteria Plans in different ways as follows:

1. Salary-Reduction Agreements defined and treated as follows:

a) A salary-reduction agreement is an agreement between the employer and employee whereby the employee, in exchange for the right to participate in a Cafeteria Plan, accepts a lower salary or foregoes a salary increase.

1) The amount of a salary-reduction agreement is not part of gross income and is not subject to Social Security, Medicare or other income taxes.

2) Amounts used to purchase qualified benefits with a salary-reduction agreement are not the employee’s wages and are not considered income for Medicaid purposes.

2. Employer Contributions, treated as follows:

a) Amounts an employer contributes to fund basic benefit levels under a Cafeteria Plan, with or without a salary reduction agreement, are not the employee’s wages and are not considered income for Medicaid purposes.

3. Payroll deductions, treated as follows:

a) Payroll deductions used to purchase Cafeteria-Plan benefits are the employee’s wages and are earned income.

b) Example: Employees who want more than basic benefits contributed by the employer may pay additional costs through payroll deductions. The amounts of those voluntary payroll deductions are the employee’s wages and are considered earned income for Medicaid purposes.

1) Unless an exception applies, FICA will be deducted from these payroll deductions.

4. Cash received under a Cafeteria Plan is treated as follows:

a) Cash received under a Cafeteria Plan in lieu of benefits is wages.