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Section 125 Plans (POP)

Help reduce your FICA, federal, and state and local taxes for your company and your employees by combining a section 125 premium only plan (POP) and flexible spending account (FSA) with your company’s group health insurance. At Paychex, we handle much of the work required to start and manage section 125 plans so you can enjoy the benefits.

Increase Section 125 Plan Savings with a Flexible Spending Account (FSA)

An FSA lets employees set aside pretax funds each year to pay for qualified medical expenses, such as:

  • Prescription drugs
  • Over-the-counter items
  • Copays and deductibles
  • Eyeglasses/contact lenses
  • Chiropractic care
  • Child/dependent care
  • Non-cosmetic dental procedures
  • Orthodontia
  • Acupuncture
  • Psychiatric care
At the eye doctor buying glasses

POP and FSA Tax Savings Calculators

See how much your business could potentially save in taxes with a Premium Only Plan (POP) and a Flexible Spending Account (FSA).

Employee FSA Tax Savings Calculator

Use this calculator to see the potential tax savings of your FSA and estimate how much you should plan to contribute based on your spending. 

Payroll Integration Sets Our Voluntary Insurance Plans Apart

Our voluntary insurance plans seamlessly integrate with our payroll technology, Paychex Flex® allowing for a smooth transfer of data between payroll and benefits. We make plan management simple, allowing you to automatically deduct premiums from Paychex payroll with a single employee record.

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Frequently Asked Questions

  • What is a section 125 plan?

    What is a section 125 plan?

    With a section 125 plan or cafeteria plan, employees can pay qualified medical, dental, or dependent care expenses on a pretax basis, which reduces their taxable income as well as the employers Social Security (FICA) liability, federal income and unemployment taxes, and state unemployment taxes where applicable.

  • What qualifies as a section 125 plan?

    What qualifies as a section 125 plan?

    Two common types of section 125 plans are:

    • Premium Only Plan (POP) A POP allows you and your employees to pay insurance premiums with pre-tax dollars. Together with group health insurance, a POP reduces taxable income and results in a reduction in the amount used to determine your company’s FICA (Federal Insurance Contributions Act) and FUTA (Federal Unemployment Tax Act) payroll taxes and any applicable state taxes.
    • Flexible Spending Account (FSA) Offered in conjunction with a group medical plan, an FSA helps employees use pretax deductions to budget for out-of-pocket medical and dependent care expenses, for things such as prescriptions, copays and deductibles, elder care, and daycare.
  • What benefits are included in section 125 plans?

    What benefits are included in section 125 plans?

    Section 125 plans can be used to reimburse you and your employees for qualified expenses related to your company’s medical plan coverage, dental and vision coverage, and for dependent care.

  • Do I need a section 125 plan?

    Do I need a section 125 plan?

    It’s up to you to decide if a section 125 plan makes sense for your company and your employees. Some of the benefits of section 125 plans include:

    • Employee tax savings
    • Reduction in employer payroll and tax liabilities

    It’s important to consider all aspects of section 125 plans in order to make the choice that is right for you.

  • Who cannot participate in a section 125 plan?

    Who cannot participate in a section 125 plan?

    In general, the following individuals are not allowed to participate in section 125 plans:

    • A non-employee
    • Self-employed individual
    • Partners in a partnership
    • Members of an LLC
    • More than 2% shareholders in a subchapter S corporation
  • How do I set up a section 125 plan?

    How do I set up a section 125 plan?

    Paychex helps you establish and manage your POP and FSA plans with important legal documentation, compliance testing, and status reports to help keep administration on track.

Premium Only Plan (POP) Tax Savings Calculator

In combination with group health insurance, a Premium Only Plan (POP) pays a portion of employee-paid insurance premiums on a pre-tax basis. This helps them save on health insurance costs while you save on certain payroll taxes. Use the calculator below to determine how much your business can save annually.

Total Annual Contributions from Employees

Tax Savings:

Paychex FSA Tax Savings Calculator

Employees who choose to open a flexible spending account (FSA) pay for out-of-pocket medical, dental, and dependent care expenses with pre-tax dollars. This gives employees more take-home pay, which decreases how much you pay in FICA and FUTA payroll taxes. Calculate how much you can save when your employees contribute money toward an FSA.

Total Number of Employees

Per Employee Annual Contribution


Tax Savings:

Total POP and FSA Tax Savings:


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