Section 125 Plan
The Section 125 Plan gives employees the option to select certain benefits,
normally paid on an after-tax basis and through salary reduction, and pay for
them on a pre-tax basis. By using FlexSystem’s third party administrative
services, you and your employees receive all the benefits of a Section 125
Cafeteria Plan and we handle the administration. The FlexSystem offers toll-free
phone assistance, Section 125 plan compliance, timely reimbursements and full
Web services that include checking payment history, view/modify participant
information, checking account balances and much more. The Section 125 plan is
a win-win situation when it comes to employers and employees saving money.
Benefits to the Employee
- Premium conversion plans for medical or health related insurance benefits enable
employees to pay their share of health insurance premiums with pre-tax dollars.
- Medical flexible spending accounts allow employees to pay for eligible medical
expenses, such as insurance deductibles and co-payments on a pre-tax basis.
- Dependent care flexible spending accounts enable employees to pay for dependent
care expenses on a pre-tax basis.
Benefits to the Employer
- Reduced payroll costs since Social Security contributions are reduced for each dollar of employee participation.
- Cost control allows the employer to control the company’s share of medical costs, without limiting employee choices.
- Address the needs of a diverse workforce by offering individually tailored benefits at little or no additional cost to the company.
- Recruit and retain quality employees since you’re able to offer your employees a benefit package with their interests in mind.
Follow this example to learn how Section 125 can increase your employee’s take home pay.*
| |
Without Sec. 125 |
With Sec. 125 |
| Monthly Salary |
$1,600 |
$1,600 |
| Flex Dollars |
______ |
$400 |
| Taxable Income |
$1,600 |
$1,200 |
| Income Tax |
$ 240 |
$180 |
| State Tax |
$128 |
$96 |
| Social Security |
$122 |
$91 |
| Income After Taxes |
$1,110 |
$833 |
| Med. Premium |
$150 |
$0 |
| Med. Expenses |
$50 |
$0 |
| Dependent Care |
$200 |
$0 |
| Take Home Pay |
$710 |
$833 |
| Net Increase |
|
$123 |
| Pay Periods |
|
x 12 |
| Annual Increase |
|
=$1,476 |
Employer's Savings
$400 x 12 mos. = $4,800 x .0765 = $367
* This worksheet is for illustration purposes only.
Actual savings may differ.