Section 125 Plans
A Section 125 Benefit Plan will increase your employees' net pay and save you money.
Section 125 is a section of the Internal Revenue Code that allows employees to set aside pre-tax
dollars toward payment of Insurance Premiums, Medical Care, and Dependent Care expenses. The
dollars used for this purpose are not subject to Social Security, Federal, or most State taxes.
In effect, Section 125 permits the employee to increase their net income by using dollars before
they are taxed.
Sometimes referred to as a cafeteria plan, flex plan, or a Section 125 plan, a Flexible Savings
Account (FSA) lets you set aside a certain amount of your paycheck into an account - before
paying income taxes. During the year, you have access to this account for reimbursement of expenses,
not covered by insurance, that you regularly pay for.
BENEFIT TO THE EMPLOYER
The salary dollars employees direct to a Section 125 Benefit Plan can reduce employer payroll
tax costs, as those dollars are not subject to the employer Social Security contribution. In
addition, lowering payroll can result in reduced Federal and/or State Unemployment Tax
contributions and Workers' Compensation premiums.
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