Section 125 Plans: Employee Benefits

What if you could save on taxes while offering employees better healthcare benefits?

That’s exactly what a Section 125 Plan does! Whether you’re an employer looking to boost retention or an employee trying to cut healthcare costs, understanding this plan is key to maximizing benefits and tax savings.

This guide covers everything about Section 125 Plans: how they work, who benefits, and how to make the most of them. (Section 125 Plans: The Ultimate Guide to Tax Savings & Employee Benefits)

What Is a Section 125 Plan?

A Section 125 Plan—also called a Cafeteria Plan—allows employees to pay for healthcare benefits with pre-tax dollars. This lowers taxable income, reducing the amount employees and employers owe in taxes.

Tax savings for both employees & businesses
Lower healthcare costs through pre-tax deductions
Flexible benefit options to meet diverse employee needs

Learn more about how Section 125 Plans save employees and businesses money

How Does a Section 125 Plan Work?

When an employer sets up a Section 125 Plan, employees can choose to contribute pre-tax earnings toward eligible benefits such as:

• Health insurance premiums
• Flexible Spending Accounts (FSAs)
• Dependent care expenses
• Health Savings Accounts (HSAs)

Since contributions are deducted before taxes, employees keep more of their paycheck while getting the coverage they need.

Discover how Section 125 Plans optimize healthcare savings

Benefits of a Section 125 Plan

For Employees:

Save on healthcare costs by reducing taxable income
Increase take-home pay without earning more
Gain access to pre-tax benefits like FSAs and HSAs

How Section 125 Plans help employees cover unexpected medical costs

For Employers:

Lower payroll taxes by reducing taxable employee earnings
Boost employee satisfaction & retention with better benefits
Attract top talent by offering competitive tax-advantaged perks

Why small businesses need Section 125 Plans

Types of Section 125 Plans

There are three main types of Section 125 Plans, each with unique advantages:

Premium-Only Plan (POP)

• Employees use pre-tax dollars to pay for health insurance premiums
• Most common & easiest to implement

Explore how a Premium-Only Plan lowers healthcare costs

Flexible Spending Accounts (FSAs)

• Employees contribute pre-tax money for medical expenses & dependent care
• Use-it-or-lose-it rule applies

Learn how FSAs help employees save

Full Cafeteria Plan

• Offers a variety of pre-tax benefits, including health insurance, dental, and vision
• Gives employees maximum flexibility in benefit choices

See how Cafeteria Plans offer flexible employee benefits

Tax Advantages of Section 125 Plans

One of the biggest perks of a Section 125 Plan is tax savings.

For Employees:

Reduces taxable income
Cuts out-of-pocket healthcare expenses
Maximizes take-home pay

For Employers:

Lowers payroll taxes (FICA & FUTA)
Provides tax-deductible business expenses
Enhances employee retention without increasing salaries

How Section 125 Plans maximize tax savings

Is a Section 125 Plan Right for Your Business?

If you want to:
Offer better healthcare benefits without increasing costs
Save on payroll taxes while boosting employee satisfaction
Give employees more control over their benefits

Then a Section 125 Plan is a no-brainer!

How businesses can leverage Section 125 Plans for cost-effective benefits

Final Thoughts: Why Every Business Should Consider a Section 125 Plan

A Section 125 Plan isn’t just a benefit—it’s a smart financial strategy for both employers and employees. By cutting taxes and offering affordable healthcare options, it improves employee satisfaction without raising payroll costs.

If you’re a business owner, now is the time to start saving.
If you’re an employee, ask your employer about enrolling in a Section 125 Plan today!

Want to explore your options? Contact us to learn how a Section 125 Plan can work for you!

Learn more about how the Section 125 Plan protects your family’s healthcare