Employee Benefits of Section 125 Plans
What Is a Section 125 Plan?
A Section 125 Plan is an IRS-approved benefits program that lets employees set aside a portion of their wages before taxes are calculated—to pay for things like healthcare, prescriptions, telemedicine, and more.
This means:
Less taxable income for the employee
Lower payroll taxes for the employer
Higher satisfaction all around
While some plans offer only health insurance premium deductions (called Premium Only Plans or POPs), others include a wide range of pre-tax benefits.
Tax-Free Benefits Your Team Will Actually Use
When you think of employee benefits, you probably think of health insurance, retirement plans, or maybe a free coffee machine in the breakroom. But there’s one benefit strategy that quietly saves both employees and employers money—and most people have never even heard of it.
That’s where a Section 125 Plan comes in.
Also known as a Cafeteria Plan, a Section 125 Plan allows employees to pay for eligible benefits using pre-tax dollars—increasing their take-home pay while helping you, the employer, reduce payroll taxes.
Here we will walk you through how these plans benefit your team, what’s typically included, and why employees love this often-overlooked tax-saving strategy.
Why These Benefits Matter?
For many employees, even basic healthcare can feel out of reach. A Section 125 Plan gives them real access to care—without draining their paycheck or relying on outdated insurance options.
Plus, younger workers (millennials and Gen Z) increasingly expect flexible, lifestyle-focused benefits. Things like telemedicine, pet care, and financial wellness go a long way toward retention.
A smarter benefits package means:
Lower stress
Better health
Higher productivity
Stronger loyalty to your company
How Pre-Tax Benefits Work for Employees
Here’s a quick example:
Let’s say your employee earns $45,000/year. Without a 125 Plan, their full salary is taxed before they pay for benefits.
With a 125 Plan, they can set aside $3,000 pre-tax for eligible expenses—lowering their taxable income to $42,000. That results in hundreds of dollars in annual tax savings, just for using the benefit.
It’s like giving them a raise—without changing your payroll budget.
And don’t worry—we’re not a law firm or an insurance agency. We’re your guide and connector, making sure you work with only trusted professionals.
Disclaimer: Section 125 Solutions LLC does not provide legal or tax advice. We act as a referral partner to third-party administrators who are fully qualified to implement and manage compliant Section 125 Cafeteria plans.
Curious How Much You Could Save by Offering Better Benefits?
Try Our Savings Calculator Below.
Section 125 Plans are among the simplest and most effective ways to enhance employee benefits while reducing payroll taxes. If you’re looking to offer smarter, tax-free benefits without increasing your budget, we can help.
Use our Savings Calculator below to:
Instantly see your estimated payroll tax savings.
Connect quickly with an expert plan provider.
Discover how easy it is to improve benefits for your team this month.
Disclaimer: Calculations provided are for informational purposes only and do not guarantee specific savings. Actual savings will vary based on individual circumstances.
Book Your Consultation
Explore how Section 125 plans could save your business over $1,000 per W-2 employee each year. Book a free consultation to see how much you could be losing by not having one.
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