Here are 5 things that will help clarify how cafeteria plans work with Health Savings Accounts (HSAs).

If an employer wants to offer employees pretax payroll deferrals to their Health Savings Accounts, the employer needs to first create a Section 125 plan or cafeteria plan that allows HSA deferrals.

A cafeteria plan is the only way for employers to offer employees a choice between taxable and nontaxable benefits, “without the choice causing the benefits to become taxable,” the IRS says. “A plan offering only a choice between taxable benefits is not a Section 125 plan.”

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