The benefit is your staff gets to pay certain personal type expenses with pre-tax dollars. As the employer, this will reduce the payroll taxes you end up paying on your employees' taxable salaries. Plus, your staff will be appreciative of your helping them reduce the after-tax cost of some of their expenses.

For every $10k your staff runs through the cafeteria plan, you'll save $765 in matching FICA taxes.

That's the benefit. You should have been quoted a cost. Now it's time to determine if the benefit exceeds the cost.

Zip Code: 01801

Very expensive compare to what? The tax savings for you and your staff can be tremendous, but there are some who peddle cafeteria plans (particularly when trying to sell insurance products too) that charge dearly.

Here's another angle for you to consider. Suppose your practice is a C corp and you pay yourself through payroll (usually "zeroing out" the corporation each year so you don't pay any taxes at the corporate level). You can have your C corp pay all the premiums for health insurance on you, your spouse and your children--tax free--but not for other employees.

Then, whatever amount is the lowest you are willing to pay for health benefits for your employees, you instead put into an HRA (health reimbursement arrangement) for each employee, including yourself. Each employee has the choice of using these credits for either paying health insurance premiums or being reimbursed for most out-of-pocket health expenses. It's tax free either way.

Since you'd already have your health insurances all paid, you'd tap your HRA dollars for out-of-pocket reimbursements, such as to pay for deductibles, co-pays, and non-covered items. Your employees would not have their health insurance paid by your C corp, so they would likely choose to use their HRA dollars to cover the premium costs for health insurance coverage.

You've doubled your tax-free health dollars doing it this way.

It can even be better if your spouse works in your practice--legitimately, not just on paper. Your spouse too would get HRA dollars accrued to his/her benefit. So that would triple up the tax-free health dollars.

If you're a small employer, this can often get you more 'bang for the buck' than a cafeteria plan. But be careful--these are ERISA plans and need ERISA documents just like a cafeteria plan does.

Zip Code: 83402