Cash Out Option?

[Guest darnone]

Can someone please explain what a "cash-out option" is in relation to a Cafeteria Plan?

[Guest JerseyGirl]

That term usually refers to the vacation days, something that I'm not involved with. I did find an IRS Private Letter Ruling about them, perhaps that will help.

http://www.irs.gov/pub/irs-wd/0130015.pdf

[papogi]

Cash-out often refers to vacation days, but the term might mean in this case (depending on who wrote it) the broader sense of cashing out of a flex plan. Many employers will offer a number of dollars or credits to be used to purchase all sorts of qualified benefits within the cafeteria/flex plan. In most cases, employees can opt out of benefits entirely and take the dollars or credits as cash, or increased wages. My guess is that this is the meaning of the cash-out option in your question. It’s possible it only refers to vacation days, but an overall cafeteria/flex plan “cash-out” option is more prevalent than the ability to cash in vacation days.

[Guest darnone]

Thank you for the replies! We are still trying to determine exactly what the broker was talking to our client about - I assumed it was the ability to take flex credits as taxable income rather than purchasing benefits. I thought it would be wise to see if there was something else I was missing here. I believe my client is very confused and a (perhaps unscrupulous?) broker is trying to take some business away from us and our referral source.

Have a great day, and thanks again.

[SLuskin]

Here we have also seen plans where the employer pays for the employee's health insurance. If the employee has other coverage and does not take the health insurance, the employer pays a certain number of dollars per month to that employee. There do not have to be flex dollars to do this.

[Guest darnone]

SLuskin - Good Morning and thanks for the post! Am I correct in assuming that the dollars the employer would pay to the non-participating employee are then classified as W-2 wages fully taxable to the employee?

[SLuskin]

Yes, that money would appear on the W2 and be fully taxable.

We also have some plan designs where the employee who declines health insurance can elect to receive either taxable cash, or another pretax benefit offered in the cafeteria plan. for example, $100/month into the medical fsa or into the dependent daycare accoutn.