How Employees and Employer are Benefits through Section 125 Plan

If you don't know what are section 125 plans, then you need to know! Every month a huge amount of money from your paycheck is taken out for the sake of taxes. What's left is too little for anything!

But here is something you can do in eating your cake and having it too!

Section 125 Plans: learning how to lower your premiums

Think about it: every month you shell out a considerable amount of your salary for tax which is deducted at source. This make the eventual payment which comes to you so little that you can barely make ends meet! But with the installment of the Section 125 plans: you have a legal loophole you can exploit to pay essentials while still saving on the tax.

What it means?

A Section 125 Plan also called as a cafeteria plan, or flexible spending plan and with several other names are all basically the same thing. The United States code started a code called as Title 26, Section 125; where people who opted for this plan were exempt from having their total income being taxed for federal income tax. This gets the consumer and the employer a whole range of benefits that last for a long time. It allows the employer to get a whole range of health care benefits for their employees while still allowing them to pay off essentials.

How do they work?

Section 125 plans is a nifty little option by which employees can contribute to their essential payments from their salary before taxation is removed from it. These payments are not taxed under any plan or government scheme. These deductions are then placed in a separate account just for this purpose. As this account is not under the jurisdiction of any tax statute, the consumer can save as much as 50% on their payments! This works out to a considerable amount for everyone involved. The premiums also turn out to be cheaper as the insurer is paying a part of the premium!

Benefits to the employer-

  • FICA Contribution Savings - As the dollars deducted for the sake of the consumer for essential contributions are not counted for social security, the employers are also saved from contributing a same amount to the social security fund. This means that employees save about 7.65 cents on every dollar.
  • New benefits - Employees can choose to save their money in better accounts like Health Care or a Dependent Care Spending Account which accrues the consumer much more health care benefits for difficult times.
  • Tax savings - As the income is garnished for deductible expenses for the employee’s benefits: both the employer and the employee save a huge amount of money in taxes.
  • Money savings - When consumers opt for this plan they save about $.25 to $.50 on every dollar.
  • Savings on premiums - Employers can have a huge amount of saving as they have opted for the FICA, FUTA, SUTA and Workers' Compensation schemes as the payments can be paid much more easily from the pretax- salary.
  • Benefit enhancements - Benefits also become eligible for the employers at a certain time.
  • Employer appreciation - Employers get more appreciation for this implementing a money-saving scheme which works out well for employees. Employees also appreciate the extra money which works well for everyone.
  • Workers' Compensation Premium Savings - Workers' compensation premiums are decided by the payroll, as a result the employer's payroll is considerably less and that works well for everyone.


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