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ARTICLE · 26 SEPTEMBER 2007

IRS Issues New Proposed Regulations On Cafeteria Plans

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On August 6, 2007, the Internal Revenue Service (the "IRS") issued new proposed regulations regarding cafeteria plans under Section 125 of the Internal Revenue Code of 1986, as amended (the "Code"). Cafeteria plans are the sole method through which an employer may offer employees a choice between taxable and nontaxable benefits without the choice itself resulting in includible income for the employees.

United StatesTax
Proskauer'S Compensation & ERISA Litigation Practice Center
Proskauer'S Compensation & ERISA Litigation Practice Center
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On August 6, 2007, the Internal Revenue Service (the "IRS") issued new proposed regulations regarding cafeteria plans under Section 125 of the Internal Revenue Code of 1986, as amended (the "Code"). Cafeteria plans are the sole method through which an employer may offer employees a choice between taxable and nontaxable benefits without the choice itself resulting in includible income for the employees. In order to provide such benefits, a cafeteria plan must comply with all of the requirements of Code Section 125 and IRS regulations. The options available under a cafeteria plan must include cash (or certain taxable benefits treated as cash for this purpose) and at least one "qualified benefit." If the plan only offers qualified benefits or only offers taxable benefits, it is not a cafeteria plan and is not subject to Section 125 regulations.

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