Section 125 health plan includes several pre-taxable healthcare benefits that cater to the basic to advanced medical needs of the employee and offer them an opportunity to reduce their tax liability. The employee can also extend these benefits to their spouse and dependents.
However, Section 125 health plans do not include additional benefits of PCMP. For that, you need a unique and well-structured plan like BrightPath Advantage. This flexible plan offered by BrightPath combines the benefits of a pre-tax cafeteria plan and PCMP. Let’s see what a Section 125 health plan is and how BrightPath Advantage differentiates from it.
What is a Section 125 Health Plan?
A Section 125 health plan is a tax-advantaged employee benefits arrangement that allows employees to pay for certain medical expenses with pre-tax dollars. This plan enables employees to customize their selections based on personal needs, offering flexibility in how they allocate part of their salary.
Eligible expenses may include insurance premiums, co-pays, and medical supplies, depending on the plan’s structure. By lowering taxable income, both employees and employers benefit financially. This option is beneficial for those looking to manage healthcare costs more efficiently while still maintaining access to necessary services through employer-sponsored options.
How to Set Up a Section 125 Health Plan?
Setting up a Section 125 health plan involves a few structured steps that ensure legal compliance and maximum tax benefits for both employers and employees. Here’s a simple breakdown to help you get started. Here is a step-by-step tutorial on how to set up a Section 125 health plan:
1. Determine Eligibility
Confirm that your business qualifies to offer a Section 125 plan.
2. Choose the Plan Type
Decide which benefits to include, such as premium-only plans, flexible spending accounts (FSAs), or dependent care assistance programs.
3. Create a Plan Document
Draft a formal written plan that outlines benefits, eligibility, and rules. This document is required by the IRS.
4. Set Up Payroll Adjustments
Coordinate with your payroll provider to allow pre-tax deductions for employee contributions.
5. Communicate with Employees
Provide a summary plan description (SPD) and explain the benefits, enrollment process, and any deadlines.
6. Ensure Compliance
Regularly review the plan to meet IRS regulations, including nondiscrimination testing and annual updates if necessary.
How Section 125 Health Plan Helps You Reduce Healthcare Costs?
A Section 125 health plan helps individuals and employers reduce overall healthcare expenses by using pre-tax dollars for eligible benefits. This strategy results in meaningful savings and greater flexibility in managing medical costs. Here is how a Section 125 health plan helps businesses reduce healthcare costs:
1. Pre-tax Contributions
Employees contribute to benefits like insurance premiums or FSAs before taxes are applied, which lowers their taxable income and increases take-home pay.
2. Lower Payroll Taxes for Employers
Since employee contributions are excluded from gross wages, employers pay less in payroll taxes like Social Security and Medicare.
3. Covers Eligible Healthcare Expenses
Funds can be used for medical co-pays, prescriptions, and other approved expenses, reducing out-of-pocket costs.
4. Customizable Benefit Options
Employees can choose plans that fit their healthcare needs, avoiding unnecessary costs for unused benefits.
5. Supports Budgeting for Medical Needs
By setting aside money pre-tax for predictable healthcare expenses, employees can better manage and plan for annual costs.
BrightPath Advantage: Upgraded Pre-Tax Cafeteria Plan for Small Businesses
BrightPath Advantage is an enhanced pre-tax cafeteria plan by BrightPath created for small businesses. It allows employees to allocate a portion of their income toward qualified benefits on a pre-tax basis. A key component of BrightPath Advantage is the Preventative Care Management Plan, which focuses on proactive health and wellness support, including services like health risk assessments and chronic care management.
The plan integrates seamlessly with existing health insurance coverage, requires minimal HR involvement, and is easy to implement. It’s a comprehensive solution designed to streamline benefits while supporting long-term employee well-being.
Why Employer and Employee Should Prefer BrightPath Advantage
BrightPath Advantage is a streamlined Section 125 pre-tax cafeteria plan designed to benefit small business owners and their employees. It offers easy implementation, tax efficiency, and added wellness support without extra cost or disruption to existing insurance plans.
Here is why employers should choose BrightPath Advantage:
- Savings up to $ 1,100 every year on each W2 employee
- Easy plan setup, 5-10% healthcare cost and expense reduction
- No changes to existing insurance
Here is why employees should choose BrightPath Advantage:
- No out-of-pocket cost
- Mental Health Counseling and Minimal Essential Coverage
- Extended benefits to family and spouse
- Employee Assistance Program and Mayo Clinic Program
- Access to preventative care services
- Accessible Group Term Life Insurance ranging between $60-$100 every month
- No change in take-home pay
Final Takeaway: A Smarter Way to Manage Healthcare Costs
Section 125 health plans offer a smart way to reduce healthcare costs by allowing pre-tax contributions for eligible medical expenses, lowering taxable income for both employers and employees. These plans not only increase take-home pay but also provide flexibility and control over healthcare spending.
For small businesses looking to maximize these benefits with minimal effort, BrightPath Advantage is an ideal choice. It combines a compliant Section 125 platform with added preventative care services and integrates it seamlessly with the existing insurance plan. Choosing BrightPath Advantage means smarter savings, better health support, and simplified benefits management for everyone involved.
Start Saving on Healthcare Today!
Get a free proposal today to know how BrightPath Advantage can maximize tax savings and enhance employee benefits effortlessly.
Reference:
https://www.peoplekeep.com/blog/what-is-a-section-125-plan
https://www.paychex.com/articles/employee-benefits/making-sense-of-section-125-and-benefit-plans