Cashed-out Credits during Leave

[Guest Heather Andrews]

I have clients that have full Cafeteria Plans and, for the first time, the question came up about unpaid leave (esp. FMLA) and how the cashed-out portion of the plan needs to be handled, if at all. (e.g. if a participant only uses $300 of a $350/month contribution and she takes the remaining $50 as taxable income.) Does the employer need to figure out some way to pay that $50 extra as "benefit dollars" versus regular pay?

Any insight is appreciated! Thanks!

[mroberts]

I've worked on companies that cash out any unused vacation at the end of the year and they do not distinguish it from ordinary income. If your company does want to make it seem more like "benefit dollars", it can always figure out what amount needs to be paid so that after taxes, the amount comes out to $50 in the given example. I would definitely wait until the end of the year and not the end of each month however.