Section 125 cafeteria plans let employees pay for real benefits with pre-tax dollars — saving employers $400–$700 per enrolled employee per year in FICA taxes. Here's everything you need to know, in plain English.
A Section 125 cafeteria plan — named after IRS Code Section 125 — is an employer-sponsored benefit program that allows employees to pay for certain qualified benefits using pre-tax dollars. Because those dollars are directed to an insurance premium before federal income tax and FICA (Social Security and Medicare) taxes are calculated, both the employee and the employer pay less in payroll taxes.
Section 125 plans are sometimes called "cafeteria plans" or "flexible benefit plans." They are 100% legal under the Internal Revenue Code and have been used by employers across the United States for decades.
What makes Section 125 different from a standard benefits plan? Traditional benefit deductions come out of an employee's paycheck after taxes are calculated. Section 125 restructures the payroll so the benefit contribution comes out before taxes — shrinking the taxable wage base for both parties.
Employees elect a voluntary insurance benefit — real coverage such as telehealth, prescription savings, hospital and accident protection, and health coaching. Premiums are deducted from their paycheck on a pre-tax basis through the Section 125 plan.
Because those dollars are now going toward an insurance premium instead of taxable wages, both you and your employees stop paying payroll taxes on that amount. Employees receive benefit payments back through the plan each pay period, which means their take-home pay actually goes up. And your company saves on FICA for every enrolled employee.
The plans include real insurance — a fully insured accident or hospital indemnity policy with a licensed carrier that assumes the risk. This is not a wellness app and it is not a reimbursement account.
These benefits layer on top of any existing health plan. Nothing changes about your current coverage.
The savings come directly from FICA taxes. Employers pay 7.65% in FICA on every dollar of taxable wages (6.2% Social Security + 1.45% Medicare). When an employee's pre-tax benefit contribution reduces their taxable wage, the employer no longer pays FICA on that portion.
Example: If an employee contributes $3,000/year to a qualified benefit under Section 125, the employer saves approximately $229.50 in FICA on that one employee. Multiply by 50 enrolled employees: $11,475/year in tax savings — with no change to your existing health plan.
Actual savings depend on:
Use the free savings calculator at benefitmatchcenter.com/calculator to estimate your specific numbers.
Benefit Match Center operates as an independent matching service. All vendors in the network are pre-screened for IRS compliance before they are recommended to any employer.
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Yes. Section 125 of the Internal Revenue Code explicitly authorizes cafeteria plans. Employers must adopt a written plan document to comply. All vendors in the Benefit Match Center network are pre-screened for IRS compliance.
No. Section 125 plans are voluntary. Employees opt in individually. Employers save on FICA taxes for every employee who chooses to enroll. There is no minimum participation requirement at the employer level.
Nothing changes. Section 125 supplemental benefits layer on top of whatever health coverage you already have. Employees keep their current doctors, networks, and coverage.
Most vendors in the Benefit Match Center network can implement a Section 125 plan within 2–4 weeks after paperwork is completed.
Benefit Match Center works with employers ranging from 10 to 5,000 employees. The economics of Section 125 are favorable at almost any company size above 10 employees.
Real insurance. The plans include fully insured accident or hospital indemnity policies with licensed carriers that assume the risk. This is not a wellness app and not a reimbursement account.
Benefit Match Center charges employers nothing — no consulting fees, no setup fees, no subscriptions, no obligations. The matching platform is funded through vendor relationships; vendors pay only if they are matched and retained by an employer.
Email sales@pinecrestconsulting.com or fill out the intake form at benefitmatchcenter.com. A benefits strategist will respond within one business day.
Complete a short intake form and a benefits strategist will contact you within one business day. No cost. No obligation.
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