Section 125 plans provide a simple and effective way to add employee benefits, especially for businesses with a number of employees who regularly have medical and childcare expenses. Employees can deduct their insurance premiums pretax and set aside pretax funds to use toward qualified medical and dependent care expenses. With a section 125 flexible spending account, employees can save an average of 30% in federal, state, and local taxes on items they already pay out-of-pocket.
For business owners, this means decreased company payroll and tax liabilities for social security, Medicare, and unemployment. A section 125 flexible spending account can save employers an average of almost $115 per participant in FICA payroll taxes – which can offset or be more than what you paid to start the plan.