Section 125 PlansVery few times do we hear about a win-win situation when we are talking about the Internal Revenue tax code. However, that is exactly the situation with section 125 plans. The term section 125 refers to the section of the Internal Revenue Code that specifically pertains to these types of plans. A section 125 plan is a written benefit plan maintained by the company for the benefit of its employees.
If an employee pays a portion of their group health insurance premium or have out-of-pocket health or dependent care expenses, a section 125 plan can help them increase their take home pay. With a section 125 plan, both employees and their employers save taxes on the money they pay toward their group health premiums. Therefore, it is a win-win situation for everyone: more take home pay for the employee and reduced payroll taxes for the employer.
- American Heritage Life