Skip to main content Skip to footer site map
a group of hr managers discussing strategies to improve the 2024 open enrollment benefits process

Section 125 Plans

Combine a section 125 premium only plan (POP) and a flexible spending account (FSA) with your company’s group health insurance to:

  • Provide flexible benefits options tailored to an individual’s needs
  • Find tax savings for you and your employees

Understanding a Section 125 Plan

A section 125 “cafeteria” plan helps employees save money on qualifying expenses such as medical or dependent care through pretax dollars. A premium only plan (POP) is a type of section 125 plan which specifically allows employees to pay for health insurance premiums with pretax dollars.

an employee using her fsa to purchase over-the-counter medications

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
an employee using a flexible spending account to pay for her eyeglasses prescription

How You Can Benefit

FSA Support

We’ll Do the Heavy Lifting

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

A family visiting the doctor

Find the Answers You Need

Our toll-free section 125 support line can help answer any questions about your benefits plan.

Paychex customer service representative
Plan Options

Provide More Flexibility

Employees may carry over up to $610 (2023) of FSA funds from one year to the next or use a Grace Period until March 15th of the following year, manageable via their Paychex Benefit Account debit card.

an employee using her health saving account for her medical checkup
Quick Claim Processing

Reimbursements, Made Easy

Reimbursements are sent Monday through Friday, and participants receive regular status reports and reminders.

a full-time employee using his health insurance for an annual checkup
Plan Management

Work on the Go

The Flock® Benefits Administration mobile app, online portal, and toll-free FSA information line make account management easy, no matter where you are.

flock mobile app

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).

Calculate Tax Savings

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.

Estimate Your Savings

Integrate With Payroll for Greater Efficiency

Employee benefits information integrates with our payroll technology, Paychex Flex®, and allows for a smoother data transfer across your business. We simplify plan management, allowing you to automatically deduct premiums from Paychex payroll with a single employee record.

Paychex Flex mobile app for employers and employees

Frequently Asked Questions

  • What Plans and Benefits Are Included in Section 125 Plans?

    What Plans and Benefits Are Included in Section 125 Plans?

    Section 125 plans can reimburse you and your employees for qualified expenses related to your company’s medical plan coverage, dental and vision coverage, and dependent care. With section 125 plans, such as a POP plan, you can make healthcare more affordable for your workforce.

  • Do I Need a Section 125 Plan?

    Do I Need a Section 125 Plan?

    When deciding if this benefit is advantageous for your company and employees, it is best to consult with a benefits specialist or an HR professional who can analyze your specific situation. Some of the benefits of section 125 plans include:

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

    Also, consult an HR professional to understand the POP insurance premium options. They can help you decide if this type of section 125 plan, which allows pretax deductions for health insurance premiums, suits your company.

  • 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

    Consult your HR professional or benefits administrator for more information on premium only plan section 125 eligibility.

  • Wondering How To Set Up a Section 125 Plan?

    Wondering How To 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 the 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 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:


Join Approximately 740,000 Customers and Get Help Managing HR, Payroll, and Benefits