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What Is A Caferia Plan?
Flexible Spending Accounts
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How POP Plans Work: An Example
Let's look at an example in which an employee making $3,000 per month pays medical insurance premiums in the amount of $500 per month.
 
Without
Cafeteria
With
Cafeteria
Gross Monthly Pay Pre-Tax Deductions
$ 3,000.00
$ 3,000.00
Insurance Premiums
0
-$500
 

Taxable Income
$3000.00
$2,500.00
     
Federal Withholding Tax*
457.00
317.00
FICA Tax (Social Security + Medicare)
-229.50
191.25
   
After-Tax Payments    
Insurance Premiums
-500
0
 

Spendable Income
$1,813.50
$1,991.75
Tax-Savings to Employee: $178.25 per Month ($2,139.00 per Year*)
Tax-Savings to Company: $38.25 per Month ($459.00 per Year)


(*Based on W-4 Withholding Allowance Status: S-0. Source: 2003 Circular E published by the IRS)