Section 125 Plans

Section 125 Plans

The term “Cafeteria Plan,” also referred to as a “Section 125 Plan,” is the most commonly used description for Flexible Benefit Plans (covered under Section 125 of the Internal Revenue Code).

A Cafeteria Plan is a flexible employee benefit plan that enables the employee to choose from a menu of certain fringe benefits and pay for all these benefits with pre-tax dollars.

Advantages to Employees:

Premiums can be paid with pre-tax dollars. Employees are tax dollars and increase their disposable income. More benefits can be afforded Employees to enjoy the flexibility of customizing their benefit plan.

Advantages to Employers:

Companies save tax dollars. Thorough planning and management, this positively effects the bottom line. Increases employee morale and retention rate with expanded employee benefits

Premium Only Plan (POP)

A POP is a simple method that allows premiums for employee group plans (such as an HIVIO, PPO, health insurance, cancer insurance, etc.) to be paid with an employee’s pre-tax dollars.

Health Savings Account (HSA)

Health Savings Accounts are a combination of a 401K type investment program and a high deductible health insurance plan.

  • You save money on health insurance premiums.
  • All contributions to the HSA are tax deductible.
  • Either an employee or employer or both can make contributions.
  • The investment build up in the HSA is tax-free.
  • Money can be taken out of the HSA for medical expenses tax-free.
  • Money taken out of the HSA for expenses other than medical after age 65 are taxed as ordinary income.
  • The money in the HSA can be invested like a 401K or IRA.
  • The HSA is portable.
  • HSA funds can be used to pay COBRA premiums or Long Term Care premiums.
  • Click here for a list of HSA Qualified Medical Expenses

Flexible Spending Accounts (FSA)

FSAs allow employees to set aside pre-tax funds from their salaries into special accounts to pay for:

  • Non-reimbursed Medical Expenses
  • Child or Dependent Care Assistance

Health Reimbursement Account(HRA)

allow an employer-funded account to repay the Non-reimbursed medical expenses of employees, along with an option to carry unused funds forward. An HRA account may reimburse any or all the same expenses as a Section 125 Flexible Spending Account (FSA).


Click below to find an infographic and full explanations of these benefits to help clients make informed decisions. Ask us about our preferred SMB Payroll Partnership Program – (855)667-4621.

Pre-Tax Benefits for Your Small Business

Pre-Tax Benefits for Your Small Business

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