Employer Benefits of a section 125 plan -

How Pre-Tax Benefits Improve Take-Home Value, Access to Care, and Financial Stability

A Section 125 plan allows employees to pay for eligible benefits—such as health coverage, preventative care, and supplemental insurance—using pre-tax dollars. This can lower taxable income, reduce out-of-pocket expenses, and provide access to a broader range of valuable services.

Before implementing a Section 125 plan, especially a Preventative Care Management Program (PCMP),it’s important to run a payroll census analysis. The goal is to confirm that every participating employee’s net take-home pay will remain the same or increase. If the analysis shows a negative impact, adjustments should be made before enrollment.

1. Reduced Taxable Income & Higher Net Take-Home Pay

Pre-tax deductions lower an employee’s taxable income, which means less federal (and in some cases, state) income tax and less FICA tax owed.

Example:

Annual pre-tax contribution: $8,000–$12,000

Federal income tax rate: 22%

FICA taxes: 7.65%

Estimated annual tax savings: $2,376–$3,564

For most employees, this means keeping more of what they earn. The right plan design ensures the net paycheck stays the same or gets a boost, without unexpected reductions in take-home pay.

2. Access to a Broader Range of Benefits

Section 125 plans—especially when paired with a Preventative Care Management Program—can include far more than basic health insurance. Eligible benefits may include:

24/7 Telehealth

Speak with a licensed doctor anytime, from anywhere.

Mental Health Counseling

Confidential sessions for emotional and mental well-being.

Personalized Holistic Coaching

Support for lifestyle, stress, and work-life balance.

Employee Assistance Program

Guidance for personal, family, and financial challenges.

Preventative Health Screenings

Early detection of health risks at no cost.

Supplemental Insurance

Additional protection for accidents, critical illness, and life events.

Nutritional Guidance & Weight Management Programs

Support for long-term health.

Minimal Essential Coverage (MEC)

Satisfies ACA requirements with no employee premium.

Virtual Primary Care Visits

12 per member per year + 12 care visits per covered child.

Quest Diagnostic Labs

Access to screenings and tests.

RX Coverage

Prescriptions with no copays for covered formularies.

Urgent Care

3 in-person visits per year with no cost to the employee.

This variety allows employees to choose benefits that match their individual and family needs—many at no additional out-of-pocket cost.

3. Lower Out-of-Pocket Healthcare Costs

With preventative care, telehealth, urgent care visits, and prescription coverage with no copays included, employees can handle most medical needs at little or no cost. This means fewer barriers to getting care when it’s needed.

By catching potential health issues early—through screenings, virtual visits, and routine checkups—employees can avoid costly treatments later. The result is lower ongoing medical expenses and greater financial peace of mind.

4. Family & Dependent Coverage

Many Section 125 plans allow employees to extend coverage to their spouse and dependents, helping protect the entire household. Because contributions are pre-tax, family coverage is often much more affordable.

This not only reduces the financial burden but also supports employee retention, as workers value employers who provide meaningful benefits for both themselves and their loved ones.

5. Predictable & Manageable Monthly Costs

Payroll deductions make benefit costs consistent and budget-friendly, replacing unpredictable lump-sum medical bills with steady, manageable payments.

Employees can better plan their monthly finances, knowing their core health needs are covered without sudden expenses disrupting their budget.

6. Maximizing Total Compensation Value

A competitive benefits package can add thousands of dollars in value to an employee’s total compensation. With tax savings and no-cost benefits, employees often feel they’re getting more from their paycheck—without sacrificing take-home pay.

This added value improves satisfaction, loyalty, and the overall perception of the employer as a place worth staying long-term.

Quick Recap for Employees

Tax Savings:

Often $2,300–$3,500 per year.

Net Pay:

Stays the same or increases with the right plan design.

Expanded Coverage:

From telehealth to urgent care, at low or no cost.

Family Benefits:

Affordable dependent coverage using pre-tax contributions.

Convenience:

Automatic payroll deductions for predictable costs.

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