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Section 125 Plans Can Save You Money

Section 125 plans fall under two categories: Premium Only Plans (POPs) and Flex Spending Accounts (FSAs). Under each plan employees can save 25-40% by using pre-tax dollars for medical services and products while the employer can save nearly 8% on monies the employees contribute. The difference between the two plans is simple.

For Employees

POPs allow employees to pay the entire portion of their medical premiums (medical, dental, vision) with pre-tax dollars. It may be used only for premiums. Estimating a 20% federal tax rate, 3% state tax rate and 7.65% FUTA tax, that’s a savings of over 30% on premiums paid.

FSAs allow employees to pay out-of-pocket medically-related expenses with pre-tax dollars. Employees choose how much they wish to contribute to the account and then draw funds as needed to pay for a wide variety of eligible expenses (including dependent care, dental, vision, co-pays and even commuter expenses). Again, this plan offers 25-40% savings by using pre-tax dollars.

For Employers

POPs allow employers to pay NO matching FICA or FUTA taxes on employee contributions. These add up to a saving of nearly 8% on all employee contributions.

FSAs allow employers to pay NO matching FICA taxes on employee contributions. This is a saving of 7.65% on all employee contributions.