Section 125 Plans and Flexible Spending Accounts:
A win-win for Employers and Employees
Adding a Section 125 plan is powerful way employers are attracting and retaining top-notch employees in an ever-increasingly competitive environment.
With a Section 125 plan, employers can help employees stretch their paychecks by offering them a means to pay for benefits on a pre-tax basis. A Section 125 plan reduces payroll-related taxes for both the employer and the employee.
One of the more popular components of Section 125 plan is a Flexible Spending Account.
Flexible Spending Accounts allow Employees to:
- deposit a portion of their paychecks on a pre-tax basis into a medical and/or dependent care expense reimbursement account.
- reimburse themselves for qualified medical expenses* not covered by health insurance.
- reimburse themselves for qualified dependent care costs.
- reduce their taxable income and income-related taxes.
Flexible Spending Accounts help Employers:
- reduce payroll-related taxes.
- help employees save money on out-of-pocket medical expenses, dependent care costs and taxes.
- attract and retain top-notch employees.
*For a complete list of medical-related expenses covered by Flexible Spending Accounts, see IRS Publication 502.
