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Section 125: an Important Tax Savings Tool

Would you like to lower your business payroll taxes?
Would your employees like to save money with lower payroll taxes?
I am confident the answer is 100% - yes.

Many small employers overlook a simple tax savings tool: Section 125.

Under Section 125 of the IRS Code, an employer can allow an employee to use pre-tax dollars to pay for their premium share for health insurance as well as dental and vision insurance. It is simple to set up, and simple to do. In many cases, the health insurance carriers (such as United Healthcare) will provide the required documents at no cost. And all payroll service providers are capable of Section 125 pre-tax payroll deductions.

So - how much money will the employer save?
That's simple: the employer will pay 7.65% (the FICA Tax).

Example 1: Employer Savings
10 enrolled employees with total weekly payroll deductions of $1,000.
Total annual payroll deductions: $52,000
Employer annual savings: $3,978 or 7.65%

How much money will the employee save?
Even more - since the employee portion will be exempt from FICA as well as federal and state income tax.

Example 2: Employer Savings
Payroll deduction for a family plan: $150 weekly or $7,800.
Employee annual savings: $2,340 or 30%

Real Savings.
And it is simple.

First, execute a Section 125 plan document (and yes, we can help).
Second, inform your payroll provider.
That's it.

 

Topics: Pre-tax payroll deductions, Section 125