Cafeteria plans earn their nickname from the flexibility they give you in choosing from a menu of benefits.Cafeteria plans are another employee benefit that offer tax breaks. Cafeteria plans are also called flexible spending accounts or Section 125 plans after the section of tax code that governs their use. Cafeteria-plan contributions are made to a reimbursement account that is used to pay for qualified expenses that you expect you will incur during the year.

Qualified expenses include health care, dependent care and group life insurance premiums that your employer does not reimburse. Qualified health care expenses includeinsurance premiums, deductibles and co payments.Your contributions to a cafeteria plan are exempt from federal income taxes and payroll taxes. Since employers also do not have to pay their one-half share of payroll taxes on your contributions to a cafeteria plan, they are often amenable to setting up a cafeteria plan.

Health Savings Accounts are tax-favored accounts for self-employed persons and employees of small companies that pay for their health insurance with higher-than-average deductibles. Funds held in an Archer MSA may be transferred into a new Health Savings Account. A similar type of tax-deferred account used to pay for health care expenses through 2003 was an Archer MSA. Archer MSAs were formerly called medical savings accounts and have been replaced by Health Savings Accounts (HSA) beginning in 2004.

With so many advantages, why is the plan underused? The most likely reason is that these plans don't generate a lot of profit for benefit administration companies, and with little profits to earn, only minimal advertising is being done. That means many people are unaware the plan even exists. But utilizing the tax code for your business can be an incredible way to enhance your employee benefits package, while simultaneously boosting your margins.