Section 125 Plan FAQs Center
The Basics of Section 125 Plans
A Section 125 Plan is a benefits program that allows employees to pay for certain benefits, like health insurance and dependent care, using pre-tax dollars. This means employees can reduce their taxable income and pay less in taxes. Employers also save on payroll taxes.
These include:
Health insurance premiums
Medical costs like doctor visits and prescriptions
Dependent care like daycare or after-school programs
Because the money is deducted pre-tax, employees lower their taxable income, which increases their take-home pay. At the same time, employers save on payroll taxes—7.65% per dollar deducted.
What Are the Benefits of a Section 125 Plan?
How Section 125 Helps Employers and Employees:
- Employees benefit by paying less in taxes, which increases their take-home pay. They can also save money on health insurance, dependent care, and other eligible benefits.
- Employers save on payroll taxes because pre-tax contributions lower the taxable income of employees. This helps reduce the business’s overall tax burden.
Who Should Offer a Section 125 Plan?
Section 125 Plans are ideal for small to mid-sized businesses looking to offer affordable benefits. They work especially well for:
Companies with W-2 employees
Businesses looking for cost-effective benefit solutions
Employers wanting to offer more benefits without increasing costs
What Benefits Can Be Offered Through a Section 125 Plan?
Types of Benefits You Can Include:
Section 125 Plans are flexible and can include a wide variety of benefits, such as:
Health insurance premiums
Flexible Spending Accounts (FSAs)
Dependent Care Assistance Plans (DCAP)
Commuter and parking benefits
Health Savings Accounts (HSAs)
Premium Only Plans (POP)
These benefits help employees save on taxes and give businesses a competitive edge.
How Do Pre-Tax Deductions Work?
Pre-tax deductions work by reducing an employee’s taxable income. For example, if an employee earns $50,000 per year and contributes $5,000 toward a Section 125 Plan, their taxable income becomes $45,000. This means they pay less in income tax, and employers save on payroll taxes.
How Do I Set Up a Section 125 Plan for My Business?
Setting up a Section 125 Plan is simple:
Choose a provider that specializes in Section 125 Plans.
Draft a plan document outlining the benefits.
Enroll employees and integrate payroll deductions.
Maintain compliance with IRS rules.
You can easily set it up in just a few steps, and our experts are here to help!
Still Have Questions?
If you still have questions about Section 125 Plans, don’t worry—we’re here to help! Our experts are available to answer your questions and guide you through the setup process. Whether you’re unsure about compliance, tax savings, or benefits, we can help you make the best decisions for your business.
- Book a Free Consultation Today
- Schedule a Call with an Expert
Let’s discuss how a Section 125 Plan can save your business money and support your employees’ well-being. Talk directly with a specialist and get all your questions answered in one call.
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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