Revision 16-4; Effective December 1, 2016

 

 

E-1100 Texas Administrative Code Rules

Revision 10-1; Effective March 1, 2010

 

§358.381. General Treatment of Income.

(a) The Texas Health and Human Services Commission (HHSC) follows §1612 of the Social Security Act (42 U.S.C. §1382a) and 20 CFR §§416.1101 - 416.1104 regarding the definition and general treatment of income for the purpose of determining financial eligibility and calculating a co-payment.

(b) A lump sum payment is countable income in the month of receipt and is a resource thereafter.

(c) A person in an institutional setting may retain a personal needs allowance (PNA) in an amount set by the HHSC executive commissioner in accordance with Chapter 32 of the Texas Human Resources Code.

(1) The PNA is not applied toward the cost of medical assistance furnished in an institutional setting.

(2) For a person receiving the reduced SSI federal benefit rate, HHSC issues a supplement to give the person a PNA at the minimum level set by the HHSC executive commissioner.

(d) An action by a fiduciary agent is the same as an action by the person for whom the fiduciary agent acts.

(1) Monies received by a fiduciary agent for another person are not income to the fiduciary agent. If the fiduciary agent is authorized to keep part of the money as compensation for services rendered, the compensation for services rendered is unearned income to the fiduciary agent.

(2) Monies received by a fiduciary agent for another person are charged as income to the person when the monies are received by the fiduciary agent.

 

§358.382. Variable Monthly Income.

The Texas Health and Human Services Commission averages monthly countable income that is predictable but varies in amount from month to month.

 

§358.383. Deeming of Income.

The Texas Health and Human Services Commission follows 20 CFR §§416.1160-416.1166 regarding the definition and treatment of deemed income for a person in a noninstitutional setting.

 

§358.384. Temporary Absence.

The Texas Health and Human Services Commission follows 20 CFR §416.1149 and §416.1167 regarding the definition and treatment of a temporary absence from a person's living arrangement for deeming purposes for a person in a noninstitutional setting.

 

§358.385. Cafeteria Plan Benefits.

The Texas Health and Human Services Commission exempts cafeteria plan benefits as defined in and based on §125 of the Internal Revenue Code (IRC), except that:

(1) cash received under a cafeteria plan in lieu of benefits is not exempt, but is counted as earned income; and

(2) payroll deductions used to purchase cafeteria plan benefits in addition to or instead of those purchased under a salary reduction agreement are not exempt, but are part of the employee's wages and are counted as earned income.

 

§358.386. Reduction of Pension and Benefit Checks for Recoupment of Overpayments.

If a person's pension or benefit checks are reduced because of recovery of overpayments, the following apply:

(1) All overpayments except Retirement, Survivors, and Disability Insurance (RSDI).

(A) If a person was receiving Supplemental Security Income (SSI) or assistance under a Medicaid-funded program for the elderly and people with disabilities (MEPD) at the time of overpayment, the Texas Health and Human Services Commission (HHSC) disregards as income the amount being recovered. HHSC counts the net amount of the benefit (that is, the gross benefit minus the amount being recouped) for the purpose of determining eligibility and calculating a co-payment.

(B) If a person was not receiving SSI or assistance under MEPD at the time of overpayment, HHSC counts the recovered amount as income. HHSC counts the gross amount of the benefit for the purpose of determining eligibility and calculating a co-payment.

(2) RSDI overpayments.

(A) If a person receives an overpayment of Social Security (RSDI or Title II) benefits, recoupment is not voluntary. HHSC counts the net amount of the RSDI benefit (that is, the gross RSDI minus the amount being recouped) for the purpose of determining eligibility and calculating a co-payment.

(B) If a person receives an overpayment of SSI benefits and the person is still eligible for SSI, the recoupment is voluntary. HHSC determines if the person signed a voluntary agreement for recoupment. If there is a signed agreement, HHSC counts the gross RSDI for the purpose of determining eligibility and calculating a co-payment. If there is no signed agreement, there should be no recoupment from RSDI benefits.

(C) If a person receives an overpayment of SSI benefits and the person is no longer eligible for SSI, recoupment of any RSDI or Title II benefits is not voluntary. HHSC counts the net amount of the RSDI benefit (that is, the gross RSDI minus the amount being recouped) for the purpose of determining eligibility and calculating a co-payment.

 

§358.387. Income Exclusions.

(a) The Texas Health and Human Services Commission (HHSC) follows 20 CFR §416.1112 and §416.1124 regarding income exclusions, except when testing income eligibility under the special income limit HHSC does not allow the exclusions:

(1) in 20 CFR §416.1112(c)(4), (5), and (7); or

(2) in 20 CFR §416.1124(c)(12), unless:

(A) the person meets the criteria under §1929(b)(2)(B) of the Social Security Act (42 U.S.C. §1396t(b)(2)(B)); and

(B) the Centers for Medicare and Medicaid Services has authorized HHSC to allow the exclusion.

(b) HHSC also excludes income described in the appendix to Subpart K in 20 CFR Part 416.

 

§358.391. Treatment of Other Income.

The Texas Health and Human Services Commission follows the federal regulations indicated in the table in this section regarding the treatment of income not otherwise described in this division

Type of Income Section(s) in 20 CFR:
Assistance received due to a major disaster; repair or replacement of lost, damaged, or stolen resources due to a disaster 416.1150
416.1151
Earned income 416.1110-416.1112
Support and maintenance assistance, including home energy assistance 416.1157
Income used to fulfill a plan to achieve self-support (PASS) for a person who is blind or disabled 416.1180-416.1182
In-kind support and maintenance 416.1130-416.1148
Unearned income 416.1120-416.1124

 

E-1200 General Income

Revision 09-4; Effective December 1, 2009

 

A person is eligible for Medicaid if the person:

  • is aged, blind or disabled;
  • meets the income and resource limits; and
  • meets all other requirements for the specific MEPD program.

This chapter covers treatment of income to budget to determine eligibility and, if applicable, co-payment. Treatment of budgets is covered in other chapters.

For purposes of Medicaid, income is anything a person receives in cash or in kind that can be used to meet the person’s needs for food and shelter. It is the receipt of any property or service a person can apply, either directly or by sale or conversion, to meet basic needs for food and shelter. Income is normally counted on a monthly basis; not all income goes into the budget to determine eligibility and the co-payment.

The receipt of a payment – in the form of cash, property, or service – is income in the month of receipt and a resource as of 12:01 a.m. on the first day of the month after receipt.

 

E-1210 Other Terms

Revision 09-4; Effective December 1, 2009

 

Calendar quarter — A period of three full calendar months beginning with January, April, July or October.

Child — A person who is not married, is not the head of a household, and is either under age 18 or is under age 22 and a student.

Couple — An eligible individual and his or her eligible spouse.

Supplemental Security Income (SSI) benefit rate — The payment amount in the SSI program.

Federal benefit rate — The monthly payment rate for an eligible individual or couple. It is the figure from which countable income is subtracted to find out how much a person’s federal SSI benefit should be. The federal benefit rate does not include the rate for any state supplement paid by us on behalf of the state.

Shelter — Includes room, rent, mortgage payments, real property taxes, heating fuel, gas, electricity, water, sewerage and garbage collection services. A person is not receiving in-kind support and maintenance in the form of room or rent if the person is paying the amount charged under a business arrangement. A business arrangement exists when the amount of monthly rent required to be paid equals the current market rental value.

Income — The receipt of any property or service a person can apply, either directly or by sale or conversion, to meet basic needs for food and shelter.

Countable income — The amount of a client's income after all exemptions and exclusions.

Income of spouse — Income considered when one member of a couple is institutionalized. Income paid to one spouse is considered to be the income of that spouse, unless a fair hearings process establishes otherwise, or the payor provides evidence that the income is augmented for a spouse, such as VA benefits. Income from community property paid to only one spouse is considered the income of that spouse regardless of state law governing community property or division of marital property. (Consult the regional attorney about ownership of income from a trust.)

 

E-1300 Types of Income

Revision 09-4; Effective December 1, 2009

 

There are two major types of income:

  • Unearned
  • Earned

Income, whether earned or unearned, is received in either of two forms:

Cash — Currency, checks, money orders or electronic funds transfers (EFT), such as:

  • Social Security checks;
  • unemployment compensation checks; or
  • payroll checks or currency.

In-kind — Noncash items such as:

  • real property (including shelter);
  • food; and
  • noncash wages (for example, room and board as compensation for employment).

Income, whether cash or in-kind, is received in either of two ways:

Fixed — Income received on a regular, predictable schedule (usually monthly) and for the same amount each month, such as:

  • Social Security checks;
  • VA checks; or
  • state retirement checks.

Variable — Income that is either received on a varying schedule or for different amounts, such as:

  • payroll checks or currency;
  • monthly bank interest; or
  • gas production checks.

 

E-1310 Relationship of Income to Resources

Revision 09-4; Effective December 1, 2009

 

In general, anything received in a month, from any source, is income to a person, if it meets the person’s needs for food and shelter. Anything the person owned prior to the month under consideration is subject to the resource counting rules.

An item received in the current month is income for the current month only. If held by the person until the following month, that item is subject to resource counting rules.

Exceptions: Occasionally, a regular periodic payment (for example, wages, pension or VA benefits) is received in a month other than the month of normal receipt. As long as there is no intent to interrupt the regular payment schedule, consider the funds to be income in the normal month of receipt.

A lump sum payment is income in the month of receipt and is a resource thereafter.

 

E-1320 Fiduciary Agent

Revision 09-4; Effective December 1, 2009

 

An action by a fiduciary agent is the same as an action by the person for whom the fiduciary agent acts.

  • Monies received by a fiduciary agent for another person are not income to the fiduciary agent. If the fiduciary agent is authorized to keep part of the money as compensation for services rendered, the compensation for services rendered is unearned income to the fiduciary agent.
  • Monies received by a fiduciary agent for another person are charged as income to the person when the monies are received by the fiduciary agent.

 

E-1400 Garnishment or Seizure

Revision 09-4; Effective December 1, 2009

 

A garnishment or seizure is a withholding of an amount from earned or unearned income in order to satisfy a debt or legal obligation.

Amounts withheld from income as garnishment to satisfy a debt or legal obligation are countable income.

 

E-1410 Division of Marital Income and Property

Revision 16-4; Effective December 1, 2016

 

A division of income and property in a divorce settlement is not considered a garnishment or lien placed against income. When an individual is paying income to a former spouse, consider court documentation before determining the ownership and accessibility of the income. A legal review of the documentation may be necessary to determine ownership and accessibility of income and a pension plan for each of the former spouses. For verification, use one of the following sources:

  • court records;
  • records of the agency through which the payments are made;
  • official documents in the individual's possession (e.g., legal documents) that establish the amount and frequency of the support; or
  • report of contact with the source of the payment that includes the amount and frequency of the alimony or spousal support.

If none of the above sources are available, obtain an individual's sworn affidavit that explains why one of the sources above is not available (for example, the documentation does not exist, the court or agency will not release the information or the source refused to cooperate).

A court may issue an order called a domestic relations order that provides income such as spousal support which may also be called alimony (see E-3320 , Alimony and Support Payments), to the former spouse.

  • If the court order indicates the applicant/recipient is paying spousal support payments or alimony to the former spouse, the payment is still considered countable unearned income to the applicant/recipient.
  • If the former spouse is the applicant/recipient, the receipt of spousal support payments or alimony is also countable income to the former spouse.

A Qualified Domestic Relations Order (QDRO) is a property settlement that assigns all or a portion of a retirement plan to the former spouse.  An employer or retirement plan administrator may refuse to recognize a QDRO and separate the retirement plan payments to each individual. Consider the portion of the retirement plan payments as income to each individual as stipulated in the QDRO, regardless if the retirement plan administrator pays each individual their portion or only pays the retiree who then pays the former spouse. 

Note: For individuals who are active or retired from the military, a marital division of property may be similar to a domestic relations order or a QDRO. A legal review of the documentation may be necessary to determine ownership and accessibility of income and a pension plan for each of the former spouses.

 

E-1420 Deeming and Court-Ordered Support Payments

Revision 09-4; Effective December 1, 2009

 

If income of an ineligible spouse, parent or ineligible child is garnished to pay court-ordered or Title IV-D enforced support payments, do not consider the income used by these individuals to make support payments. Support payments are payments made under a court order or enforced in compliance with a state agreement under Title IV-D. Title IV-D child support payments are usually made directly to the state.

 

E-1500 Income and Transfer of Assets

Revision 09-4; Effective December 1, 2009

 

An irrevocable waiver of income must be evaluated for a transfer of assets penalty. See Chapter I, Transfer of Assets.

 

E-1600 Reduction of Checks for Recoupment of Overpayments

Revision 09-4; Effective December 1, 2009

 

If a person's pension or benefit checks are reduced because of recovery of overpayments, the amount considered as income is based on the source of the payment.

 

E-1610 SSA Overpayments

Revision 12-4; Effective December 1, 2012

 

If a person receives an overpayment of Social Security (RSDI or Title II) benefits, recoupment is not voluntary. HHSC counts the net amount of the RSDI benefit (for example, the gross RSDI minus the amount being recouped) for the purpose of determining eligibility and calculating a co-payment.

If a person receives an overpayment of SSI benefits and the person:

  • is still eligible for SSI, the recoupment is voluntary. HHSC determines if the person signed a voluntary agreement for recoupment. If there is a signed agreement, HHSC counts the gross RSDI for the purpose of determining eligibility and calculating a co-payment. If there is no signed agreement, there should be no recoupment from RSDI benefits.
  • is no longer eligible for SSI, recoupment of any RSDI or Title II benefits is not voluntary. HHSC counts the net amount of the RSDI benefit (that is, the gross RSDI minus the amount being recouped) for eligibility and applied income purposes.

 

E-1620 All Other Overpayments

Revision 09-4; Effective December 1, 2009

 

If a person was receiving SSI or assistance under MEPD at the time of overpayment, HHSC disregards as income the amount being recovered. HHSC counts the net amount of the benefit (for example, the gross benefit minus the amount being recouped) for the purpose of determining eligibility and calculating a co-payment.

If a person was not receiving SSI or assistance under MEPD at the time of overpayment, HHSC counts the recovered amount as income. HHSC counts the gross amount of the benefit for the purpose of determining eligibility and calculating a co-payment.

 

E-1700 Things That Are Not Income

Revision 09-4; Effective December 1, 2009

 

Some things a person receives are not income because the person cannot use those things as food or shelter, or cannot use those things to obtain food or shelter. In addition, what a person receives from the sale or exchange of that person’s own property is not income; the proceeds of the sale or exchange of the person’s property remains a resource. The following are some items that are not income.

 

E-1710 Medical Care and Services That Are Not Income

Revision 09-4; Effective December 1, 2009

 

Medical care and services. Medical care and services are not income if they are any of the following:

  • Given to a person free of charge or paid for directly to the provider by someone else.
  • Room and board a person receives during a medical confinement.
  • Assistance provided in cash or in kind (including food or shelter) under a federal, state or local government program whose purpose is to provide medical care or medical services (including vocational rehabilitation).
  • In-kind assistance (except food or shelter) provided under a nongovernmental program whose purpose is to provide medical care or medical services.
  • Cash provided by any nongovernmental medical care or medical services program.
  • Direct payment of the person’s medical insurance premiums by anyone on the person’s behalf.
  • The value of any third-party payment for medical care or medical services furnished to a person.
  • The value of advice, consultation, training or other services of a strictly social nature furnished to a person.
  • Payments from the Department of Veterans Affairs resulting from unusual medical expenses.
  • Cash provided under a health insurance policy (except cash to cover food or shelter) if the cash is either:
    • repayment for program-approved services a person has already paid for; or
    • a payment restricted to the future purchase of a program-approved service.
  • Third-party resource (TPR) reimbursements to the person (for example, from medical insurers) for a given medical service that do not exceed the amount spent by the person for that same service.

A premium payment for supplementary medical insurance benefits (SMIB) under Title XVIII (Medicare), paid by a third party directly to the Social Security Administration, is not income.

Refunds to a recipient from the state’s Third-Party Recovery Unit are made if TPR payments (for example, from medical insurers) for a given medical service exceed the amount Medicaid paid for that same service. These refunds are income to the person upon receipt.

Examples of medical services include:

  • Room and board (food and shelter), provided an individual is an inpatient in a medical treatment facility.
  • Payment of bed-hold charges for a nursing facility (NF) resident who is temporarily discharged from the facility.
  • In-kind medical items, such as prescription drugs, eyeglasses, and prosthetics and their maintenance. In-kind medical items also include devices intended to make the physical abilities of a person with disabilities equal to those of a person without disabilities, such as electric wheelchairs, modified scooters, specially equipped vehicles, or construction of a carport to a house to protect a specially equipped vehicle. Also included are specially trained animals, such as seeing eye dogs and their maintenance, such as dog food.
  • Transportation to and from medical treatment.

 

E-1720 Social Services That Are Not Income

Revision 09-4; Effective December 1, 2009

 

A social service is any service, other than medical, that is intended to assist a person with a physical disability or social disadvantage to function in society on a level comparable to that of a person who does not have such a disability or disadvantage. No in-kind items are expressly identified as social services.

Social services. Social services are not income if they are any of the following:

  • Assistance provided in cash or in kind (but not received in return for a service the person performs) under any federal, state or local government program whose purpose is to provide social services, including vocational rehabilitation (for example, cash from the Department of Veterans Affairs to purchase aid and attendance).
  • In-kind assistance (except food or shelter) provided under a nongovernmental program whose purpose is to provide social services.
  • Cash provided by a nongovernmental social services program (except cash to cover food or shelter) if the cash is either:
    • repayment for program-approved services the person already has paid for; or
    • a payment restricted to the future purchase of a program-approved service.

Examples of social service programs:

  • Title XX of the Social Security Act provides services directed at the following goals: achieving and maintaining self-sufficiency; preventing and remedying abuse, neglect or exploitation; and preventing inappropriate institutionalization.
  • Title IV-B of the Social Security Act, Child Welfare Services, provides for the protection and promotion of the welfare of children.
  • Title V of the Social Security Act, Maternal and Child Health and Crippled Children's Services.
  • The Rehabilitation Act of 1973 provides services to disabled persons, including vocational rehabilitation, expanding employment opportunities, and promoting self-sufficiency and independence.

Note: Wages and salaries from Title V of the Older Americans Act, such as Green Thumb and Senior Texan Employment Program (STEP), are countable earned income.

Examples of governmental programs that may provide medical and social services in combination are:

  • state mental health and mental retardation programs under the umbrella of services from HHSC; and
  • state alcoholism programs.

Examples of nongovernmental organizations that provide medical and social services in combination are the:

  • Salvation Army; and
  • American Red Cross.

Examples of what is not a social service:

  • Training for a specific job skill or trade (vocational training). Do not confuse vocational training with vocational rehabilitation.
  • Governmental income maintenance programs, such as SSI, TANF, Bureau of Indian Affairs General Assistance and VA pension/compensation benefits.

Cash received in conjunction with medical or social services:

  • Any cash provided by a governmental medical or social services program is not income. An example is cash payments from DADS In-Home and Family Support program or from the Department of Family and Protective Services (DFPS) Relative Caregiver program.
  • Any cash from a nongovernmental medical or social services organization is not income if the cash is:
    • for medical or social services already received by the individual and approved by the organization and does not exceed the value of those services; or
    • a payment restricted to the future purchase of a medical or social service.
  • Cash from any insurance policy that pays a flat rate benefit to the person without regard to the actual charges or expenses incurred is countable income. An exception to this is if the insurance policy is considered a long-term care insurance policy.

In-kind items received in conjunction with medical or social services:

  • In-kind items that meet the definition of medical services are not income regardless of their source.
  • Room and board provided during a medical confinement, such as in a medical treatment facility, is not income.
  • In-kind items (including food or shelter) provided by a governmental medical or social services program are not income.
  • In-kind items (other than food or shelter) provided by a nongovernmental medical or social services organization for medical or social service purposes are not income.
  • Food or shelter or other in-kind income provided by a nongovernmental medical or social services organization is income unless excluded under some other section of this handbook (for example, food is provided while a patient is in a medical treatment facility and consequently is not income).

 

E-1730 Sale of a Resource is Not Income

Revision 09-4; Effective December 1, 2009

 

Receipts from the sale, exchange or replacement of a resource are not income, but are resources that have changed their form. This includes any cash or in-kind item that is provided to replace or repair a resource that has been lost, damaged or stolen.

Example: If a person sells an automobile, the money a person receives is not income; it is another form of a resource. If fair market value was received for the sale of the automobile, no transfer of assets occurred.

 

E-1740 Miscellaneous Things That May Not Be Income

Revision 09-4; Effective December 1, 2009

 

Income tax refunds. Any amount refunded on income taxes the person has already paid is not income. Income tax refunds are subject to restitution policy (in the month of receipt) for co-payment purposes, to the extent that withholding tax was excluded in the co-payment budget.

Payments by credit life or credit disability insurance. Payments made under a credit life or credit disability insurance policy on the person's behalf are not income.

Example: If a credit disability policy pays off the mortgage on the person's home after the person becomes disabled in an accident, neither the payment nor the increased equity in the home is income.

Bills paid for the person. Payment of the person's bills by someone else directly to the supplier is not income. However, the value of anything a person receives because of the payment if it is in-kind income is counted.

Receipt of certain noncash items. Any item a person receives (except shelter as defined in Section E-1210, Other Terms, or food) that would be an excluded nonliquid resource (as described in Chapter F, Resources) if a person kept it is not income.

Example: A community takes up a collection to buy a specially equipped van, which is the person's only vehicle. The value of this gift is not income because the van does not provide the person with food or shelter and will become an excluded nonliquid resource under in the month following the month of receipt.

Replacement of income a person has already received. If income is lost, destroyed or stolen and a person receives a replacement, the replacement is not income.

Weatherization assistance. Weatherization assistance (for example, insulation, storm doors or storm windows) is not income.

 

E-1750 Proceeds of a Loan

Revision 12-2; Effective June 1, 2012

 

Money a person borrows or money a person receives as repayment of a loan is not income. However, interest a person receives on money a person has lent is income. Buying on credit is treated as though a person were borrowing money and what a person purchases this way is not income.

A loan requires a bona fide agreement that is legally valid and made in good faith. For the borrower, the loan agreement itself is not a resource. The cash provided by the lender is not income, but is the borrower's resource if retained in the month following the month of receipt.

Proceeds (amount borrowed) of either a commercial loan or an informal loan for which repayment is required with or without interest are not counted as income in the month in which they are received. The proceeds are considered to be a resource in the following month(s). To claim exemption of the proceeds of a loan, a person must prove that he acknowledges an obligation to repay and that some plan for repayment exists. If these conditions can be verified, no written contract is required.

Note: Federal Educational Loans (Federal PLUS Loans, Perkins Loans, Stafford Loans, William D. Ford Loans, etc.) under Title IV of the Higher Education Act (HEA) are exempt from income and resources.

See Chapter F, Resources, and Chapter I, Transfer of Assets.

 

E-1760 Wage-Related Payments

Revision 10-1; Effective March 1, 2010

 

See Section E-3110, Wages, for a definition of earned income from wages. Employers make various payments on behalf of their employees that are not earnings and are not available to meet food or shelter needs. If an employer pays an employee's share of Social Security (FICA) or unemployment compensation taxes without making a reduction in the employee's wages, the amount the employer pays is considered income.

The following payments by an employer are not income unless the funds for them are deducted from the employee's salary:

  • Funds the employer uses to purchase qualified benefits under a cafeteria plan.
  • Employer contributions to a health-insurance or retirement fund.
  • The employer's share of FICA taxes or unemployment compensation taxes, in all cases.
  • The employee's share of FICA taxes or unemployment compensation taxes paid by the employer on wages for domestic service in the private home of the employer or for agricultural labor only, to the extent that the employee does not reimburse the employer.

 

E-1770 Mandatory Payroll Deductions

Revision 16-2; Effective June 1, 2016

 

See Section E-3110, Wages, for a definition of earned income from wages. If an employer pays an employee's share of Social Security (FICA) or unemployment compensation taxes without making a reduction in the employee's wages, the amount the employer pays is considered income. The amount the employer pays is not considered income in the following two work situations:

  • The employee is in domestic service in the employer's home.
  • The employee does agricultural labor only.

When considering a person’s earned income, do not consider mandatory payroll deductions as income for the purpose of determining a co-payment. The mandatory payroll deductions are:

  • income tax;
  • Social Security tax;
  • required retirement withholdings; and
  • required uniform expenses.

 

E-1780 Cafeteria Plan

Revision 09-4; Effective December 1, 2009

 

A cafeteria plan is a written benefit plan offered by an employer in which:

  • all participants are employees; and
  • participants can choose, cafeteria-style, from a menu of two or more cash or qualified benefits.

A qualified benefit is a benefit the Internal Revenue Service (IRS) does not consider part of an employee's gross income. Qualified benefits include, but are not limited to:

  • accident and health plans (including medical plans, vision plans, dental plans, accident and disability insurance);
  • group term life insurance plans (up to $50,000);
  • dependent care assistance plans; and
  • certain profit-sharing or stock bonus plans under section 401(k)(2) of the Internal Revenue Code. IRS does not exclude from income salary reductions made under 401(k)(1) plans. Salary reductions to fund benefits under 401(k)(1) are counted as wages for eligibility and applied income purpose.

Cash is not a qualified benefit.

A salary-reduction agreement is an agreement between employer and employee whereby the employee, in exchange for the right to participate in a cafeteria plan, accepts a lower salary or foregoes a salary increase.

Most cafeteria plans are funded by salary-reduction agreements. However, employers may make contributions to fund basic benefit levels under a cafeteria plan without a salary-reduction agreement.

Salary reductions to purchase qualified benefits under a cafeteria plan are not part of the employee's wages and are not income for eligibility or co-payment purposes.

Payroll deductions may be used to purchase cafeteria-plan benefits in addition to or instead of cafeteria-plan benefits provided under a salary-reduction agreement or employer contribution. The amount of the individual's payroll deductions for cafeteria plan benefits is the employee's wages and is earned income.

Important: Pay slips that appear to show payroll deductions may actually show how funds from a salary-reduction agreement have been allotted among qualified benefits.

The following indicators on a pay slip may indicate an approved cafeteria plan: Flex, Choices, Sec. 125, or Cafe Plan.