Section 125 Plans
Part 2 of Making Benefits More Affordable
Section 125, or cafeteria, plans allow employees to pay qualified medical, dental, or dependent-care expenses on a pretax basis, which has the effect of reducing their taxable income as well as their employer's Social Security (FICA) liability, federal income and unemployment taxes, and state unemployment taxes where applicable.
One type of section 125 plan, a Premium Only Plan (POP), helps employees lower their health insurance costs while maximizing tax savings. In our full e-book, you'll find a detailed example and a calculator for determining your potential POP savings.
Another section 125 plan is a Flexible Spending Account (FSA). An FSA allows employees to pay with pretax funds qualified out-of-pocket health and dependent care expenses not covered by their benefit plans. This effectively reduces employees' taxable income, which in turn reduces their employer's Social Security payroll tax liability. The e-book includes a savings example.
Watch this video for more about section 125 plans, including new guidelines. Then watch our related videos for the rest of our e-book, 7 Questions Every Small Business That Hires Employees Will Have to Answer.