What is Section 125?

Section 125 plans were created to give you an incentive to provide your employees with benefits.

Under IRS Section 125, employers are allowed to offer employees nontaxable benefits on expenses such as out of pocket healthcare, dependent care and group insurance benefits. Employees deduct the cost of these items regularly from their gross salary and avoid paying federal, state*, or FICA taxes on this deducted income.

Section 125 plans benefit your business as dollars that flow through the plan are exempt from matching FICA, FUTA, SUTA and Workers' Compensation* premiums on these deductions. You also benefit through increased company morale. Everyone’s happy because you’re effectively giving your employees a raise without the cost of the raise being passed on to them or borne by you.

There are many options in the plan design of §125 plans, including flexible spending accounts, healthcare savings accounts and premium only plans, known as POPs.

*Tax savings can vary depending on the state/tax jurisdiction.



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