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Section 125 Flexible Benefit Plans

Flexible Benefit Plans offer the opportunity for both employees and employers to save tax dollars. The plans allow employees to pay for certain expenses with “pre-tax” dollars. This means that employees are able to spend their benefit dollars without paying Federal, State or Social Security/Medicare taxes on the money. This also means that the employer does not have to pay matching Social Security/Medicare taxes and, in most states, all other payroll taxes on the benefit dollars.
Allowable under Internal Revenue Code Section 125, Flexible Benefit Plans offer employee choices. Employees can set aside funds for four different categories of expenses. An employer can set up the plan to take advantage of all four categories or limit the categories.

Benefit categories available:

  • Health-related insurance premiums - paid as payroll deductions by employees toward the cost of health related insurance sponsored by the employer.
  • Health insurance premiums paid directly to insurance companies by the employee. (Premiums paid through spouse’s employer are not allowable)
  • Medical and medical related expenses – Included, generally, are any expenses that are deductible under Section 213 of the Internal Revenue Code. Over the counter medications are now allowable expenses.
  • Dependent care expenses – necessary because the employee works.
*Please see the eligible medical expense list for more details.
 

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