Flexible Benefits With Section 125 Plans

A Section 125 plan provides employees with the option to pay for certain benefits, like health insurance premiums, out-of-pocket medical expenses, and dependent care, using pre-tax dollars. This reduces taxable income, which can lower both the employee's and employer's tax liabilities.

A 125 compensation plan, known as a cafeteria plan, lets employees customize their benefits package by choosing from a menu of pre-tax benefit options. These often include health insurance, dental and vision coverage, dependent care, or flexible spending accounts.

Section 125 plans allow reimbursement for qualified expenses, including medical, dental, vision coverage, and dependent care. Options like a Premium Only Plan (POP) help make healthcare more affordable for employees.

Determining whether a Section 125 plan is right for your business and employees requires careful consideration. Consulting a benefits specialist or HR professional can help assess your specific situation.

• Employee tax savings
• Reduced employer payroll and tax liabilities

Additionally, an HR professional can guide you on POP (Premium Only Plan) options, which allow pretax deductions for health insurance premiums. This can help you decide if this type of plan aligns with your company’s needs.

The following individuals are generally ineligible for Section 125 plan participation:

• Non-employees
• Self-employed individuals
• Partners in a partnership
• LLC members
• Shareholders owning more than 2% in an S corporation (2% owners are treated as partners in a partnership)

For further details on Section 125 eligibility, consult your HR professional or benefits administrator.

Paychex streamlines the process by providing legal documentation, compliance testing, and status reports to ensure smooth administration of your POP and FSA plans.

The cost of setting up a Section 125 plan can vary depending on the size of the company and the complexity of the plan. Typically, 2025 setup fees range from $500 to $2,000, with additional ongoing administrative costs. Some providers may charge per employee or as part of a benefits package.