IRS Publication 15B — Employer's Tax Guide to Fringe Benefits
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“Cash and cash equivalent fringe benefits (for example, gift certificates, gift cards, and the use of a charge card or credit card), no matter how little, are never excludable as a de minimis benefit.”
A cafeteria plan, including an FSA, provides participants an opportunity to receive qualified benefits on a pre -tax basis. It is a written plan that allows your employees to choose between receiving cash or taxable benefits, instead of certain qualified benefits for which the law provides an exclusion from wages. If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead won’t make the qualified benefit taxable. Generally, a cafeteria plan doesn’t include any plan that offers a benefit that defers pay. However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay.
Qualified benefits. A cafeteria plan can include the following benefits discussed in section 2.
• Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance).
• Adoption assistance.
• Dependent care assistance.
• Group-term life insurance coverage (including costs that can’t be excluded from wages).
• HSAs. Distributions from an HSA may be used to pay eligible long-term care insurance premiums or to pay for qualified long-term care services.
Benefits not allowed. A cafeteria plan can’t include the following benefits discussed in section 2.
• Archer MSAs. See Accident and Health Benefits in section 2.
• Athletic facilities.
• De minimis (minimal) benefits.
• Educational assistance.
• Employee discounts.
• Employer-provided cell phones.
• Lodging on your business premises.
• Meals.
• No-additional-cost services.
• Retirement planning services.
• Transportation (commuting) benefits.
• Tuition reduction.
• Working condition benefits.
It also can’t include scholarships or fellowships (discussed in Pub. 970). Contribution limit on a health FSA. For plan years beginning in 2026, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $3,400.
A cafeteria plan that doesn’t limit health FSA contributions to the dollar limit isn’t a cafeteria plan and all benefits offered under the plan are includible in the employee’s gross income.
For more information, see Notice 2012 -40, 2012 -26 I.R.B. 1046, available at IRS.gov/irb/ 2012-26_IRB#NOT -2012-40. “Use-or-lose” rule for health FSAs. Instead of a grace period, you may, at your option, amend your cafeteria plan to allow an employee’s unused contributions to carry over to the immediately following plan year. For more information, see Notice 2013 -71, 2013-47 I.R.B. 532, available at IRS.gov/irb/2013-47_IRB#NOT -2013-71; and Notice 2020-33, 2020 -22 I.R.B. 868, available at IRS.gov/irb/ 2020-22_IRB#NOT -2020-33.
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