125 Plans for Non-Profits & Charities
What Is a Section 125 Plan?
A Section 125 Plan (also called a cafeteria plan) lets employees set aside part of their wages before taxes to pay for important life expenses. This means they lower their taxable income and save money every pay period.
Qualified expenses include:
Health insurance premiums
Medical costs like prescriptions and co-pays
Child care and dependent care
Certain work-related commuting costs (if Section 132 is added)
And here’s the best part: while your team saves money, your organization pays less in payroll taxes.
Why It Works for Non-Profits
Non-profits need benefits that are flexible, low-cost, and impactful. Section 125 Plans check all those boxes. You don’t need to fund insurance or hire more admin staff. These plans are easy to manage and make a big difference for your team.
Key reasons non-profits love 125 Plans:
No large upfront costs
Works for small or large teams
Helps attract and retain quality staff
Provides meaningful benefits without increasing salaries
Fits within grant-funded or donor-approved budgets
Whether your team is working in the field, running events, or supporting operations, this plan helps them—and you.
Why Non-Profits Need a 125 Plan
Offering competitive compensation in the nonprofit sector can be tough. You want to support your team, but you’re often operating on grants, donor funds, or restricted budgets. Raises, bonuses, and expensive insurance plans might not be in reach—but you can still deliver meaningful benefits.
Here’s how a 125 Plan helps:
Low-cost setup and no employer-funded contributions required
Boosts employee take-home pay without increasing salaries
Saves your nonprofit 7.65% on payroll taxes (FICA)
Helps you attract and retain mission-driven talent
These plans are particularly valuable for nonprofits that rely on smaller teams, part-time workers, or operate with limited HR infrastructure.
What Benefits Can You Include?
Section 125 Plans are flexible. You can tailor your offerings based on the needs of your organization and your staff.
1. Premium Only Plan (POP)
This is the simplest option. Employees can pay for health insurance premiums pre-tax—even if they buy their own coverage. This reduces their taxable income and gives them more take-home pay.
Best for: Nonprofits that don’t offer group insurance but want to help employees save on coverage.
2. Flexible Spending Account (FSA)
FSAs allow staff to set aside pre-tax dollars for:
Medical expenses (co-pays, prescriptions, deductibles)
Dental and vision services
Approved over-the-counter products
Employees choose how much to contribute each year, and those funds are deducted evenly across their paychecks.
3. Dependent Care FSA (DCAP)
Working parents can save big with this option. DCAP allows pre-tax contributions to pay for:
Daycare
Preschool
Before- and after-school care
Babysitters or nannies
This helps parents on your team keep more of what they earn—and can reduce financial stress.
4. Optional Add-Ons
You can also include:
24/7 telemedicine
Identity theft protection
Pet care assistance
Mental health and wellness support
Discount travel programs
Financial coaching or literacy tools
Each of these can be bundled into your Section 125 Plan and funded through employee pre-tax payroll deductions.
Designed for These Types of Organizations
Not every benefit plan fits the heart of mission-driven work but this one does Whether you run a nonprofit school food bank or community group this plan was built to support your team and stretch every dollar without cutting care or impact.
Section 125 Plans are a great fit for:
Charities and foundations
Faith-based organizations
Arts and cultural nonprofits
Advocacy groups and social justice teams
Animal shelters and environmental orgs
Educational nonprofits and tutoring centers
Food banks and community resource hubs
If you’re managing a team of W-2 employees, even just a few, this benefit plan will work for you. It also scales easily if your team grows or your organization expands.
Staff Satisfaction and Retention
Keeping great talent in the nonprofit world is hard. Burnout is real. Financial stress is real. Offering real benefits—even modest ones—goes a long way in building loyalty.
Here’s what your team gains:
Lower out-of-pocket health and family care costs
More flexible take-home pay
Support for working parents
Confidence that they’re working for an employer who cares
And here’s what your organization gains:
Reduced turnover
Better recruitment results
Fewer financial barriers for staff
More stable, committed teams
A 125 Plan helps your mission thrive by helping your people stay and succeed.
Try Our Tax Savings Calculator Today!
Use it to:
Estimate annual payroll tax savings
See how much staff could save on expenses
Compare plan options in minutes
Get started today and make every dollar go further—for your people and your mission.
📣 Disclaimer: Calculator results are for informational purposes only. Actual savings vary based on staff participation and organization structure.
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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