Module 6--Cafeteria Plans

All of the following qualified benefits can be offered under a Sec. 125 plan EXCEPT:

deferred compensation to a 457(b) plan.; Under Section 125, medical coverage, 401(k) plans, long-term disability insurance and dependent care plans are eligible benefits. 403(b) and 457(b) plans are not eligible benefits in a cafeteria plan.

An employee with a gross pay of $1,500.00 has the following deductions: Income, social security, and Medicare taxes $326.75 401(k) contribution$ 45.00 Refunded business expenses $21.42 Pretax health ins. premium $116.25 Calculate the employee's net pay.

$1,033.42; Net pay is calculated by subtracting all an employee's deductions from the gross pay. However, if there is a negative deduction (such as a refund of a business expense), it must be added to the gross pay, not subtracted.

A company contributes $350.00 each month to a qualified Sec. 125 plan for medical insurance. In addition, $100.00 is contributed to a dependent care flexible spending account. How are these amounts taxed?

$450.00 is not taxable income; Under Section 125 Cafeteria Plan rules, the use of contributions to purchase eligible benefits, such as in a dependent care FSA, is nontaxable.

An exempt employee paid biweekly has regular wages of $1,125.00 and a holiday bonus of $60.00. The employee's year-to-date wages are $96,000.00 and is claiming single and 1 allowances on a 2019 Form W-4. Using the Wage Bracket method and Worksheet 3, calculate the employee's net pay with the following deductions:

$884.41; LOOK AT PAY CYCLE ON FORM!!!!! Make sure you are using the Wage Bracket Method withholding table, Worksheet 3 from Publication 15-T, for single persons with a biweekly payroll cycle and the taxable wages are in the row where the wages are at least the lower amount, but less than the higher amount. The taxable wages for federal income tax should be the regular wages of $1,125.00, plus the holiday bonus of $60.00, less the Plan 125 deduction of $40.00, and the 401(k) contribution of $75.00, but not less the charitable contribution of $16.00. The social security and Medicare wages are reduced by the Sec. 125 deduction, but not the 401(k) contribution or the charitable contribution. The net pay is the gross pay of $1,185.00, less total tax of $169.59, less all of the voluntary deductions of $40.00, $75.00, and $16.00, which should be $884.41.

Which of the following statements is true regarding Sec. 125 plans?

Employer contributions taken as cash represent taxable compensation.; IRS rules require Section 125 plan benefits received in cash from a Cafeteria Plan to be included in the employee's income. Cafeteria plan rules require the loss of contributions at the end of the plan year when the employee has not incurred eligible expenses. Employee discounts and scholarship grants are not eligible benefits that a Section 125 Cafeteria Plan can offer.

An employer contributes $350.00 per month to each employee's Sec. 125 medical plan. An employee elects to receive the $350.00 per month in cash since the spouse's employer offers an excellent medical plan. What are the implications of taking the $350.00 in cash?

The $350.00 is taxable income when received.; When an employee chooses cash in a Section 125 Cafeteria Plan, the cash is included in the employee's income.

An employee has elected to have $200.00 per month contributed to a dependent care flexible spending account. At the end of the plan's grace period, $100.00 remains unused in the account. What happens to the $100.00?

The amount is forfeited.; Section 125 Cafeteria Plan's grace period rule allows an employee with unused funds in an FSA the ability to incur eligible expenses in the first 2½ months after the plan year and have them applied to the prior plan year's contributions. If the unused amounts are not used at the end of the grace period, they are lost.

In a medical flexible spending account, an employee has elected to defer $1,000.00 for the plan year. Early in the plan year, the employee incurs $1,500.00 in medical expenses. What occurs?

The employer reimburses the employee $1,000.00 tax free.; Section 125 Cafeteria Plan's uniform coverage rule requires the plan to reimburse the employee for eligible medical expenses up to the amount of the employee's election even though the employee's contributions have not yet reached the election amount.

An employee has contributed $300.00 YTD into a medical flexible spending account. In November, the employee was terminated with $100.00 remaining in the account after all qualified reimbursements had been made. When must the employer reimburse the employee's $100.00?

When additional qualified medical expenses are submitted; Section 125 medical Flexible Spending Account rules allow a distribution of unused contributions after an employee's termination to reimburse eligible expenses incurred prior to the employee's termination.

All the following benefits can be offered in an IRC §125 plan EXCEPT:

educational assistance.; Qualified benefits permitted in an IRC §125 plan include accident and health plans, group-term life insurance, health savings accounts (HSA), elective vacation days, elective contributions to a qualified cash or deferred arrangement (401(k) only), cash, and adoption assistance. Educational assistance plans are not permitted in an IRC §125 plan.

An employee uses cafeteria plan benefits of $350.00 per month to pay for chosen benefits. The $350.00 represents:

nontaxable compensation if not chosen as a cash benefit.; Under Section 125 Cafeteria Plan rules, the use of contributions to purchase eligible benefits is nontaxable.

All of the following benefits can be offered under a Sec. 125 plan EXCEPT:

scholarship and fellowship grants.Under IRS Section 125, Cafeteria Plans may include benefits such as long-term disability, additional vacation days, contributions to a 401(k) plan, medical, dependent and other benefits. Section 125 cafeteria plans are not allowed to include qualified transportation fringe benefits, scholarships and fellowships, working condition fringe benefits, contributions to 403(b) and 457(b) plans, and other benefits.

All of the following qualified benefits can be offered under a Sec. 125 plan EXCEPT:

working condition fringes.; IRC Section 125 allows cafeteria plans the ability to provide nontaxable benefits, such as Health Savings Accounts, dependent care assistance, and long-term disability insurance coverage. In most cases, benefits that are excluded from income under other IRC provisions, such as working condition fringe benefits, cannot be provided in a Section 125 Cafeteria Plan.