Everything you need to know about Section 125 cafeteria plans, employer tax savings, and employee benefits — all in one trusted place.
Understand what Section 125 cafeteria plans are and how they work.
Learn key IRS rules and requirements to stay compliant.
Explore real-world examples of how employers and employees benefit.
Section125Plan.com was created to help executives and finance leaders evaluate the advantages of Section 125 cafeteria plans. We provide clear explanations, compliance requirements, and plan comparisons—so you can make informed, confident decisions without sifting through complex tax code.
Our mission is to simplify the process from education to implementation, and to connect companies with providers whose solutions align with their size, industry, and operational needs.
Section 125 of the Internal Revenue Code allows employees to pay for certain benefits with pre-tax dollars. This reduces taxable income for both employees and the employer, creating mutual financial advantages.
Also known as a cafeteria plan, this structure lets employees choose from a range of IRS-permitted benefits while ensuring the employer benefits from payroll tax savings.
Your provider reviews your current benefits, payroll setup, and employee profile to confirm eligibility and potential savings.
The provider recommends the most effective plan design for your goals, such as a Premium Only Plan, Full Menu, or Enhanced Wellness option.
The provider prepares the required Plan Document and Summary Plan Description (SPD) to ensure IRS compliance.
Payroll deductions and enrollment are set up for you, with employee communications supplied by the provider.
The provider conducts annual compliance testing and updates documents as needed to keep your plan compliant.
A good provider handles roughly ~85% of the process — your role is simply to review, approve, and share the provided materials with your team.
Employers with more than 2 W-2 employees (Not the owner or their family)
Organizations offering, or willing to offer, qualifying benefits (health, dental, vision, life, wellness programs)
Businesses seeking to reduce payroll taxes without reducing wages
Supported business types:
S-Corporation, C-Corporation, LLC, LP, Sole Proprietorship, Nonprofit (plan designs vary by entity type).
Industries served:
Healthcare, construction, manufacturing, technology, professional services, retail, logistics, education, finance, hospitality, nonprofit, and more.
Significant annual savings on FICA and other payroll taxes.
Offer richer benefits without increasing salary budgets.
Benefits packages remain a top driver of employee satisfaction.
Keep current carriers and benefit structures while adding a compliant plan layer.
Works for both mid-sized and enterprise-level organizations.
Keep or increase net pay
Reduced taxable income without reducing gross pay.
Dependent Coverage
Many plans extend pre-tax coverage to eligible family members.
Year-Round Access
Benefits apply throughout the year, not only during open enrollment.
Enter your employee count and average annual W-2 salary to estimate employer payroll tax savings and average employee tax savings.
Your Estimated Annual Savings
Based on industry averages
$0
Range: $0 - $0
Per Employee savings: $1,190
3-Year Savings
$0
5-Year Savings
$0
Employees pay their share of insurance premiums with pre-tax dollars.
Offers a menu of pre-tax benefits such as dental, vision, FSAs, and dependent care.
Recommeded
Adds health and wellness benefits alongside existing coverage, often at no cost to employer or employees.
Reimburses certain qualified medical expenses on a pre-tax basis under IRC §213(d).
Employees pay their share of insurance premiums with pre-tax dollars.
Offers a menu of pre-tax benefits such as dental, vision, FSAs, and dependent care.
Recommeded
Adds health and wellness benefits alongside existing coverage, often at no cost to employer or employees.
Reimburses certain qualified medical expenses on a pre-tax basis under IRC §213(d).
Section 125 plans are regulated by multiple federal laws and agencies. To keep your tax savings protected — and avoid costly penalties — your plan must be designed, documented, and maintained in full compliance.
Benefits apply throughout the year, not only during open enrollment.
Ensures the plan integrates with minimum essential coverage requirements and does not create employer mandate penalties.
Protects employee medical privacy and regulates health-related plan communications.
Requires a written Plan Document, Summary Plan Description (SPD), timely disclosures, and proper claims procedures.
A Section 125 plan, also called a cafeteria plan, lets employees pay for certain benefits with pre-tax dollars, reducing both their taxable income and employer payroll taxes. A qualified provider sets up the plan, integrates it with payroll, and manages compliance.
Any employer — from small businesses with 10 employees to large corporations with thousands — can set up a Section 125 plan, as long as they follow IRS, ACA, HIPAA, and ERISA rules. Most commonly, companies with W-2 employees see the greatest savings.
Employers save on payroll taxes (often $600–$1,800 per employee annually) and can offer richer benefits without increasing costs. It can also improve employee retention and job satisfaction.
Employees can reduce their taxable income, pay less in taxes, and gain access to additional health, wellness, and lifestyle benefits — often at no out-of-pocket cost.
Popular options include Premium Only Plans (POP), full cafeteria plans, Preventive Care Management Plans (PCMP), Flexible Spending Accounts (FSA), and Dependent Care Assistance Programs.
No. An FSA is just one type of benefit that can be offered under a Section 125 plan. The Section 125 framework allows for a variety of pre-tax benefits, including FSAs.
Plans must meet IRS Section 125 guidelines, ACA rules, HIPAA privacy protections, and ERISA documentation and reporting standards. Providers handle plan documents, annual testing, and updates to ensure compliance.
Savings vary based on employee count and wages, but employers typically save $600–$1,800 per W-2 employee annually. A savings calculator can help estimate your exact potential.
Look for a provider with experience in your industry, strong compliance processes, and a track record of measurable employer and employee savings. Using a provider matching service can help you compare trusted options.
Expert insights, compliance updates, and real-world examples to help you make the most of Section 125 plans.
Use the form below to ask a question, request compliance guidance, or receive a shortlist of providers that fit your business profile.
