IRS-Approved Tax Savings

Section 125
Cafeteria Plans

Reduce your payroll tax burden and give employees more take-home pay — with zero disruption to your current benefits. Most employers save hundreds of dollars per employee per year.

How It Works ↓

Instant Savings Estimator

Employees enrolled 25

Avg monthly premium $400

Estimated Annual Employer Savings

$4,590

in FICA / payroll tax reduction

How It Works

Pre-tax benefits that save everyone money.

A Section 125 plan lets employees pay for eligible benefits using pre-tax dollars — reducing their taxable income and your payroll tax liability simultaneously.

We set up an IRS-compliant plan document

We create the required legal plan document and ensure your cafeteria plan meets all IRS Section 125 requirements. No plan document = no tax savings, and potential IRS penalties.

Employees elect their benefits pre-tax

During open enrollment, employees choose which benefits they want to pay for on a pre-tax basis — health premiums, FSA contributions, dependent care, and more.

Payroll deductions are taken pre-tax

Those deductions come out before federal income tax, Social Security (FICA), and Medicare — reducing the taxable wage base for both you and your employees.

Both sides save — every single paycheck

Employers save 7.65% FICA on every pre-tax dollar. Employees save federal income tax plus FICA on their contributions. The savings add up fast.

What qualifies under Section 125?

Employer-sponsored health insurance premiums
Dental and vision insurance premiums
Health Flexible Spending Accounts (FSA)
Dependent Care Spending Accounts (DCA)
Accident and critical illness premiums
Hospital indemnity insurance premiums
Group term life insurance (up to $50,000)
Disability insurance premiums (in some cases)

Already offering benefits?

If your employees are currently paying their share of health premiums on an after-tax basis, you're leaving money on the table — for them and for you. Adding a Section 125 wrapper to your existing plan is often surprisingly straightforward.

Plan Options

What we can include in your cafeteria plan

A cafeteria plan can be as simple or comprehensive as your workforce needs. We design it around your existing benefits.

Premium Only Plan (POP)

The simplest cafeteria plan — lets employees pay their share of health, dental, and vision premiums with pre-tax dollars. Low cost, easy to administer, big tax impact.

Most Common Starting Point

Flexible Spending Account (FSA)

Employees set aside pre-tax money for qualified medical expenses — copays, prescriptions, glasses, and more. The employer can also contribute to boost the benefit.

Saves on out-of-pocket costs

Dependent Care Account (DCA)

Pre-tax dollars for eligible dependent care expenses — daycare, after-school programs, elder care. Up to $5,000/year per household tax-free.

Big savings for working parents

Full Cafeteria / Full-Flex Plan

The most comprehensive option — combines POP, FSA, and DCA with a menu of voluntary benefits all paid pre-tax. Ideal for employers with 25+ employees.

Maximum tax advantage

The Numbers

See what Section 125 actually saves

Based on a sample employer with 20 employees each paying $450/month in health premiums.

Annual Tax Savings Breakdown

Sample: 20 employees, $450/mo premium, $5,400/yr each

Category	Without Plan	With Section 125	Annual Savings
Employee FICA contribution	$8,262	$0	$8,262
Employer FICA (7.65% × payroll)	$16,524	$8,262	$8,262
Total combined savings	—	—	$16,524

Employer's annual FICA savings alone

$8,262

* Figures are illustrative estimates. Actual savings depend on employee participation, wages, and benefit elections. We'll run exact numbers for your business.

Common Questions

Section 125 — what you need to know

Yes — this is an IRS requirement many employers miss. Without a written plan document, your cafeteria plan is not valid under Section 125, and all pre-tax deductions could be reclassified as taxable income in an audit. We prepare and maintain IRS-compliant plan documents as part of our service.

Yes. Even if your company does not sponsor a group health plan, you can still establish a Section 125 plan to allow employees to pay for voluntary benefits, FSA contributions, or individual health coverage on a pre-tax basis. We'll help you build the right structure for your situation.

Once your plan is in place, your payroll provider simply adjusts the deduction codes to reflect pre-tax status. Most major payroll platforms (ADP, Paychex, Gusto, QuickBooks Payroll) support this natively. We'll provide the documentation your payroll team needs to make the switch cleanly.

The main consideration is that employees make an annual election that generally cannot be changed mid-year unless they have a qualifying life event. FSA funds are also use-it-or-lose-it at year-end (with some grace period options). We explain all of this clearly to employees during enrollment so they make informed decisions.

A basic Premium Only Plan (POP) can typically be implemented within 1–2 weeks. A full cafeteria plan with FSA and DCA components may take 3–4 weeks depending on your open enrollment timing. We recommend starting the process 4–6 weeks before your plan year or renewal date.

Section 125Cafeteria Plans