Section 125 plans

Help your employees — and your company — save money with a section 125 plan

Taxes are the price we pay for success, whether as an employer or an employee. But we can all save on FICA, federal, and state and local taxes* by combining a section 125 premium only plan (POP) and flexible spending account (FSA) with your company’s group health insurance.

The professionals at Paychex make section 125 plans even more appealing by handling much of the frustrating work required to start and manage them – so you can relax and enjoy the benefits.

  • Get your section 125 plan up and running

    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.

  • Establish and manage an FSA with ease

    We help set up your FSA, process claims daily, and provide the legal documentation, compliance testing calculations, and reports to properly maintain your account.

  • Quickly find the answers you need

    Our toll-free section 125 support line is staffed by professionals highly trained in POP and FSA plans, their limits, and their benefits. They’ll be glad to answer your questions.

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Calculate Your Savings

Use the two calculators below to see how much in tax savings you and your employees can realize with a Premium Only Plan (POP) and Flexible Spending Account (FSA) – both through Paychex.

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:

Doctor giving high five to little girl

How do section 125 plans work?

A POP allows an employer to pay a portion of employees’ insurance premiums on a pre-tax basis, effectively lowering their taxable income — as well as your company’s payroll taxes.

In addition to premiums, an FSA lets employees elect to set aside pre-tax funds each year to pay for qualified medical expenses, such as:

  • Prescription drugs
  • Over-the-counter items**
  • Co-pays and deductibles
  • Eyeglasses/contact lenses
  • Chiropractic care
  • Child/dependent careƗ
  • Non-cosmetic dental procedures
  • Orthodontia
  • AcupunctureƗƗ
  • Psychiatric care

**A doctor's prescription for over-the-counter medicines and drugs must accompany a reimbursement claim form submitted to Paychex.

What sets Paychex section 125 plans apart?

  • Plans are easier to manage with payroll integration

    By connecting your plans with Paychex payroll, you immediately reduce your risk of inaccurate data entry, and section 125 administration becomes more efficient.

  • More flexible plan options

    Choose a plan that allows participants to carry over up to $500 into the next plan year, or a plan with a grace period until March 15 of the following plan year.

  • Enrollment support

    Promote your POP and FSA plans to employees with resources designed to encourage them to enroll for the next plan year.

  • Convenient access to funds

    Employees can use their Paychex Benefit Account debit card like a major credit card to access funds and pay for eligible items and services.

  • Check balances and manage plans on the go

    The Paychex Benefit Account mobile app, online portal, and toll-free FSA Information Line make account management easy.

  • Quick claim processing

    Reimbursements are remitted throughout the business week, and participants receive regular status reports and reminders.

Employee FSA Tax Savings Calculator

You can save on federal, state, and local taxes for many medical and dependent care expenses when you put pre-tax dollars into your flexible spending account (FSA). In fact, FSA participants save an average of up to 40 percent each year on many out-of-pocket expenses.*

Please note that eligible expenses will be reimbursed in full up to $2,650*** for medical expenses per plan year, and $5,000 for dependent care expenses per plan year. Any unused money at the end of the plan year will be forfeited. To avoid this, use the calculator below to base your dependent care or medical FSA contributions on an estimate of qualifying expenses that you and your family will have throughout the year.

Your Information

Medical Expenses

Please refer to our full list of health FSA-eligible expenses when making your calculations.

Add Medical Expense

Dependent Care Expenses

Please refer to our full list of dependent care expenses when making your calculations.

Add Dependent Care Expense
Calculate Savings

Potential Tax Savings: $0

Based on your spending, you should plan to contribute [total from medical] toward your medical FSA. You can contribute [X] more and still be fully reimbursed.

You have reached the medical FSA limit. You can maximize your tax savings potential by contributing the $2,650 maximum.

Based on your spending, you should plan to contribute [total from dependent] toward your dependent care FSA. You can contribute [X] more and still be fully reimbursed.

You have reached the dependent care FSA limit. You can maximize your tax savings potential by contributing the $5,000 maximum.

The information in this estimator should not be considered legal or accounting advice and it should not substitute for legal, accounting, and other professional advice. The estimated tax savings amount above is not a guarantee and is provided for informational purposes only. The actual tax savings may change depending on state, local, and other applicable taxes. Calculations are based on single filing. This estimator accounts for annual limits on FSAs, which are $2,650*** for medical expenses per plan year, and $5,000 for dependent care expenses per plan year. After this limit is reached, expenses are not reimbursed. If you require legal or accounting advice, or need other professional assistance, you should always consult your attorney, accountant, or other professional advisor to discuss your particular facts, circumstances, and business needs.

* Based on an average annual employee FSA contribution of $1,500. Specific savings depend on a participant's federal tax bracket and state and local tax rates.

*** Companies may set their own maximum for medical expense reimbursement maximum

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Acknowledged as one of the nation’s top agencies, Paychex Insurance Agency works with national and regional carriers to help you find the group medical, dental, vision, life, and short- and long-term disability plans that best fit your business and your employees.
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