Compare Plan Types & Tax Savings
What Is a Section 125 Plan? A Quick Refresher
A Section 125 Cafeteria Plan allows employees to pay for eligible benefits with pre-tax dollars, reducing their taxable income. In return, employers save on payroll taxes—specifically FICA taxes—because the amount subject to Social Security and Medicare drops.
That means:
Employees save on income taxes
Employers save on payroll taxes
Benefits cost less overall
But not every business needs the same plan. That’s where comparing your options comes in.
The Three Main Types of Section 125 Plans
1. Premium Only Plan (POP)
The simplest and most popular option, especially for small businesses.
What it does:
Lets employees pay their share of insurance premiums—medical, dental, vision—using pre-tax dollars.
Who it’s for:
Businesses that already offer group health insurance
Teams that want minimal admin work
Employers looking for quick payroll tax savings
Tax Savings Example:
10 employees contributing $3,000/year toward health premiums = $30,000 pre-tax
Employer saves 7.65% on payroll = $2,295/year
Pros:
→ Simple setup
→ Low cost
→ Fast ROI
Cons:
→ Doesn’t include FSAs or dependent care
→ Limited to insurance premiums only
2. Full Cafeteria Plan (Flexible Benefits Plan)
A more robust plan structure offering a wider range of benefit options.
What it does:
Lets employees pay pre-tax for insurance plus things like:
Health FSA (Flexible Spending Account)
Dependent Care FSA (DCAP)
Telemedicine
Lifestyle and wellness benefits
Add-on perks like ID theft, travel, and pet care
Who it’s for:
Mid-sized to large companies
Employers offering multiple benefits
Teams wanting full benefit customization
Tax Savings Example:
25 employees each elect $4,000 in total benefits = $100,000 pre-tax
Employer saves 7.65% on payroll = $7,650/year
Pros:
→ Broad tax-saving opportunities
→ Flexible benefit design
→ Helps attract and retain top talent
Cons:
→ Slightly more complex setup
→ Requires nondiscrimination testing (we handle that)
3. Flexible Spending Account (FSA) Only Plan
Ideal for employers who want to offer pre-tax spending but don’t yet provide full insurance.
What it does:
Lets employees set aside pre-tax money for:
Medical expenses (FSA)
Childcare or eldercare expenses (DCAP)
Who it’s for:
Employers without a full benefits suite
Teams with high out-of-pocket costs
Companies wanting to support working parents
Tax Savings Example:
15 employees contribute $2,500 into FSAs = $37,500 pre-tax
Employer saves 7.65% = $2,868/year
Pros:
→ Highly appreciated by employees
→ Big tax benefits for working parents
→ No insurance requirement to start
Cons:
→ Use-it-or-lose-it rules for employees
→ Requires a bit more employee education
Comparison at a Glance
| Plan Type | Pre-Tax Premiums | FSAs | Dependent Care | Add-On Benefits | Admin Complexity | Payroll Tax Savings |
|---|---|---|---|---|---|---|
| POP Plan | Yes | No | No | No | ⭐ Easy | ⭐⭐ Moderate |
| Full Cafeteria | Yes | Yes | Yes | Yes | ⭐⭐ Moderate | ⭐⭐⭐ High |
| FSA-Only | No | Yes | Yes | Limited | ⭐⭐ Moderate | ⭐⭐ Moderate |
Start Saving in Just a Few Steps
Section 125 Plans aren’t just about compliance—they’re about strategy. The right plan helps your business reduce taxes, support your team, and offer meaningful benefits without extra cost.
- Want to see which plan will save you the most?
- Use our free calculator or book a consult today.
-> Compare plan types with expert help
-> See your payroll tax savings in real numbers
-> Launch a compliant, custom-fit plan in days
Let’s get started—your savings are waiting.
Find Out How Much a 125 Plan Could Save Your Business
Stop guessing and start saving. Use our free calculator to see your estimated payroll tax savings based on real numbers. It only takes a minute to discover how much money you could keep in your business with a compliant, employee-friendly 125 Plan.
Use it to:
Estimate your annual payroll tax savings instantly
See how pre-tax benefits increase employee take-home pay
Decide if now’s the right time to upgrade your benefits strategy
Try the Calculator Now →
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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