Cafeteria Plans or an employee benefit plans allow employees to select a menu of pre-tax benefits. For example, employees might select to pay for health insurance, dental insurance, life insurance, retirement contributions, flex spending daycare or medical plans with pre-tax dollars. This practice often results in participants paying fewer taxes and taking home more of their pay. An employee may also elect to forego the benefits and add the additional payment to his or her take home pay.
You must consider any amounts the employee chooses not to use for allowable plan expenses as part of his or her employment income.