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These frequently asked questions and answers are provided for general information only and should not be cited as any type of legal authority. They are designed to provide the user with information required to respond to general inquiries. Due to the uniqueness and complexities of federal tax law, it is imperative to ensure a full understanding of the specific question presented, and to perform the requisite research to ensure a correct response is provided.
A cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit.
A qualified benefit is a benefit that does not defer compensation and is excludable from an employee’s gross income under a specific provision of the Code, without being subject to the principles of constructive receipt. Qualified benefits include the following:
Accident and health benefits (but not Archer medical savings accounts or long-term care insurance)
Adoption assistance
Dependent care assistance
Group-term life insurance coverage
Health savings accounts, including distributions to pay long-term care services
The written plan must specifically describe all benefits and establish rules for eligibility and elections.
A section 125 plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable. A plan offering only a choice between taxable benefits is not a section 125 plan.
The plan may make benefits available to employees, their spouses and dependents. It may also include coverage of former employees, but cannot exist primarily for them. See the questions below for treatment of benefits made available to individuals who are not spouses or dependents of the employee.
Generally, no. If you only have a cafeteria plan, you are not required to file Form 5500 or Schedule F. However, if you have a welfare benefit plan, you may be required under Department of Labor regulations to file a return for that plan. Please see the Form 5500 Instructions or contact the U.S. Department of Labor for more information. Assistance is also available from our Customer Account Services office.
Employer contributions to the cafeteria plan are usually made pursuant to salary reduction agreements between the employer and the employee in which the employee agrees to contribute a portion of his or her salary on a pre-tax basis to pay for the qualified benefits. Salary reduction contributions are not actually or constructively received by the participant. Therefore, those contributions are not considered wages for federal income tax purposes. In addition, those sums generally are not subject to FICA and FUTA. See Sections 3121(a)(5)(G) and 3306(b)(5)(G) of the Internal Revenue Code.
The above discussion provides only the most basic rules governing a cafeteria plan. For a complete understanding of the rules, see the Proposed Regulations under Code section 125.
A flexible spending arrangement (FSA) is a form of cafeteria plan benefit, funded by salary reduction, that reimburses employees for expenses incurred for certain qualified benefits. An FSA may be offered for dependent care assistance, adoption assistance, and medical care reimbursements. The benefits are subject to an annual maximum and are subject to an annual “use-or-lose” rule. The maximum amount of reimbursement which is reasonably available to a participant for such coverage must be less than 500 percent of the value of the coverage. In the case of an insured plan, the maximum amount reasonably available must be determined on the basis of the underlying coverage. An FSA cannot provide a cumulative benefit to the employee beyond the plan year.
An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. The limit is reduced to $2,500 for married employees filing separate returns. The exclusion cannot be more than the earned income of either the employee or the employee’s spouse. The total dependent care benefits the employer paid to the employee or incurred on the employee’s behalf (including amounts from a section 125 plan) should be reported in Box 10 of Form W-2. Any amount over $5,000 should be included in Boxes 1, 3, and 5, as “wages,” “Social Security wages” and “Medicare wages.” See Guide to business expense resources or Publication 15-A, Employer's Supplemental Tax Guide (Supplement to Circular E, Employer's Tax Guide, Publication 15 PDF for additional information.
Generally, qualified benefits under a cafeteria plan are not subject to FICA, FUTA, Medicare tax, or income tax withholding. However, group-term life insurance that exceeds $50,000 of coverage is subject to social security and Medicare taxes, but not FUTA tax or income tax withholding, even when provided as a qualified benefit in a cafeteria plan. Adoption assistance benefits provided in a cafeteria plan are subject to social security, Medicare, and FUTA taxes, but not income tax withholding. If an employee elects to receive cash instead of any qualified benefit, it is treated as wages subject to all employment taxes. For more information, see Guide to business expense resources or Publication 15-A, Employer's Supplemental Tax Guide (Supplement to Circular E, Employer's Tax Guide, Publication 15) PDF .
No. Employees can only be reimbursed for allowable, documented expenses incurred during the plan year, after the expenses have been substantiated.
Cafeteria plans can offer health insurance to employees, their spouses and their dependents. The domestic partner and dependents in this case may not be participants in a cafeteria plan because they are not employees, but the plan may provide benefits to them. For example, a domestic partner may not be given the opportunity to select or purchase benefits offered by the plan, but the domestic partner may benefit from the employee’s selection of family medical insurance coverage or of coverage under a dependent care assistance program.
(social-security-income)Social Security Income (IRS frequently asked questions)#
(social-security-income)(block-1)Answer:#
Social Security benefits include monthly retirement, survivor and disability benefits. They don't include supplemental security income (SSI) payments, which aren't taxable. The net amount of Social Security benefits that you receive from the Social Security Administration is reported in Box 5 of Form SSA-1099, Social Security Benefit Statement, and you report that amount on line 6a of Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors . The taxable portion of the benefits that's included in your income and used to calculate your income tax liability depends on the total amount of your income and benefits for the taxable year. You report the taxable portion of your Social Security benefits on line 6b of Form 1040 or Form 1040-SR.
Your benefits may be taxable if the total of (1) one-half of your benefits, plus (2) all of your other income, including tax-exempt interest, is greater than the base amount for your filing status.
The base amount for your filing status is:
$25,000 if you're single, head of household, or qualifying surviving spouse,
$25,000 if you're married filing separately and lived apart from your spouse for the entire year,
$32,000 if you're married filing jointly,
$0 if you're married filing separately and lived with your spouse at any time during the tax year.
If you're married and file a joint return, you and your spouse must combine your incomes and Social Security benefits when figuring the taxable portion of your benefits. Even if your spouse didn't receive any benefits, you must add your spouse's income to yours when figuring on a joint return if any of your benefits are taxable.
Generally, you can figure the taxable amount of the benefits in Are my Social Security or railroad retirement tier I benefits taxable? , on a worksheet in the Instructions for Form 1040 (and Form 1040-SR) or in Publication 915, Social Security and Equivalent Railroad Retirement Benefits . However, if you made contributions to a traditional Individual Retirement Arrangement (IRA) for 2025 and you or your spouse were covered by a retirement plan at work or through self-employment, use the special worksheets in Appendix B of Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) , to see if any of your Social Security benefits are taxable and to figure your IRA deduction.
If you did not receive your SSA-1099 from Social Security, also called a Social Security Benefit Statement, you can request one online with a my Social Security account . Replacement SSA-1099s are available beginning February 1 for the previous year. You can also contact Social Security directly if you cannot request it online or if your SSA-1099 needs a correction.
(social-security-income)(block-2)Additional Information:#
Topic no. 423, Social Security and equivalent railroad retirement benefits
Publication 554, Tax Guide for Seniors
(social-security-income)(block-3)Answer:#
Yes, under certain circumstances, although a child generally won't receive enough additional income to make the child's Social Security benefits taxable.
The taxability of benefits must be determined using the income of the person entitled to receive the benefits.
If you and your child both receive benefits, you should calculate the taxability of your benefits separately from the taxability of your child's benefits.
The amount of income tax that your child must pay on that part of the benefits that belongs to your child depends on the child's total amount of income and benefits for the taxable year.
To find out whether any of the child's benefits may be taxable, compare the base amount for the child’s filing status with the total of:
One-half of the child's benefits; plus
All of the child's other income, including tax-exempt interest.
If the child is single, the base amount for the child's filing status is $25,000. If the child is married, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits for the applicable base amount and the other rules that apply to married individuals receiving Social Security benefits.
If the total of (1) one half of the child's Social Security benefits and (2) all the child's other income is greater than the base amount that applies to the child's filing status, part of the child's Social Security benefits may be taxable. You can figure the taxable amount of the benefits on a worksheet in the Instructions for Form 1040 (and Form 1040-SR) or in Publication 915 .
(social-security-income)(block-4)Additional Information:#
Are my Social Security or railroad retirement tier I benefits taxable?
Topic no. 423, Social Security and equivalent railroad retirement benefits
(social-security-income)(block-5)Answer:#
You can't amend returns for prior years to reflect Social Security benefits received in a single lump-sum in the current year. You must include the taxable part of a lump-sum payment of benefits received in the current year (reported to you on Form SSA-1099, Social Security Benefit Statement) in your current year's income, even if the payment includes benefits for an earlier year.
However, there are two ways to determine the amount of income to include:
You can use your current year's income to figure the taxable part of the total benefits received in the current year; or
You may make an election to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year.
You can select the lump-sum election method (by checking the box on line 6c of your Form 1040 or 1040-SR ) if it lowers the taxable portion of your benefits:
Under this method, you refigure the taxable part of all your benefits (including the lump-sum payment) for the earlier year using that year’s income.
Then you subtract any taxable benefits for that year that you previously reported.
The remainder is the taxable part of the lump-sum payment. Add it to the taxable part of your benefits for the current year (figured without the lump-sum payment for the earlier year).
Worksheets in Publication 915, Social Security and Equivalent Railroad Retirement Benefits can help you calculate the taxable portion using this method.
(social-security-income)(block-6)Additional Information:#
Topic no. 423, Social Security and equivalent railroad retirement benefits
Publication 554, Tax Guide for Seniors
Are my Social Security or railroad retirement tier I benefits taxable?
(social-security-income)(block-7)Frequently Asked Question Subcategories for Social Security Income#
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