A smart way for you to pay for certain work benefits with pre-tax dollars.
Section 125 Plans, also known as Cafeteria Plans, are a smart way for you to pay for certain work benefits with pre-tax dollars. This means money for things like health insurance premiums, medical expenses, or dependent care comes out of your paycheck before taxes are calculated. The result? You lower your taxable income, keep more of your hard-earned money, and save on federal, state, and payroll taxes!
Common Section 125 Benefits You Can Choose
These plans offer flexibility, letting you pick benefits that fit your life. Here are the most common ones you’ll see:
- Premium-Only Plan (POP): The simplest option! This lets you pay your share of group health, dental, and vision insurance premiums using pre-tax dollars. It’s a huge win for your wallet.
- Flexible Spending Accounts (FSAs): Set aside pre-tax money for specific expenses:
- Health FSA: Covers out-of-pocket medical costs like deductibles, co-pays, prescriptions, and eyeglasses.
- Dependent Care FSA: Pays for eligible childcare or elder care expenses, helping you manage family responsibilities.
- Health Savings Accounts (HSAs): If you’re on a high-deductible health plan, you can contribute pre-tax funds to an HSA. This money grows tax-free and can be used for qualified medical expenses now or in retirement. Unlike FSAs, HSA funds roll over year after year and belong to you.
Why Choose a Section 125 Plan?
- Save Money: Lower your taxable income, which means less in taxes and more in your pocket.
- Boost Take-Home Pay: Even small pre-tax deductions add up to noticeable savings on your paycheck.
- Get More Value from Benefits: Make your employer-sponsored benefits even more affordable and impactful.
Section 125 plans make your benefits work harder for you by transforming how you pay for essential services. Talk to your HR department to see which options your employer offers!
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