In an era where businesses are always looking for ways to reduce costs and provide valuable benefits, Section 125 Health Plans have become a popular solution. These plans offer significant tax advantages for both employers and employees, making them a win-win. But how exactly do Section 125 health plans work, and why should your business consider using them?
In this article, we’ll break down what a Section 125 health plan is, how it operates, and why businesses across industries are using them to optimize their healthcare benefits and reduce payroll taxes. Plus, we’ll explain how BrightPath’s Preventative Care Management Program (PCMP) simplifies the process for employers.
A Section 125 Health Plan is a benefits program that allows employees to pay for health-related expenses with pre-tax dollars. Under IRS Code Section 125, these plans include options such as health insurance premiums, flexible spending accounts (FSAs), and health savings accounts (HSAs).
Essentially, it’s a way for employees to access healthcare benefits—like medical, dental, and vision insurance—while lowering their taxable income. Employers also benefit by paying less in payroll taxes (e.g., FICA and FUTA) since employee contributions are made before taxes are calculated.
For more information on Section 125 health benefits, check out What Benefits Are Included in a Section 125 Plan? A Comprehensive Guide
Here are the major reasons businesses choose to implement Section 125 Health Plans:
By offering pre-tax health benefits, employers reduce their tax liability because employee contributions are deducted before calculating payroll taxes.
Employees appreciate having the option to pay for their health insurance premiums and other health-related expenses on a pre-tax basis, which increases their take-home pay.
Employers may not have to contribute to the cost of benefits, as employees fund their own plans through payroll deductions.
Section 125 health plans are IRS-approved, ensuring businesses stay compliant with all applicable regulations, including the Affordable Care Act (ACA).
For employees, a Section 125 health plan reduces their taxable income by allowing them to pay for health insurance premiums and other medical-related expenses with pre-tax dollars. This lowers the amount of income subject to taxes, leading to increased take-home pay.
Here’s a quick comparison of how this works in real terms:
In this example, the employee saves $60 per month ($720 per year) by enrolling in a Section 125 health plan, which means more money in their pocket each month to cover medical expenses.
Employers can offer various health-related benefits under Section 125, including:
Employees can pay for health, dental, and vision premiums with pre-tax dollars.
Employees can use pre-tax dollars to pay for eligible medical expenses such as prescriptions, copayments, and medical devices.
Employees can save pre-tax dollars for future medical expenses, offering them additional flexibility in managing healthcare costs.
This helps employees pay for childcare expenses on a pre-tax basis.
Offering these benefits under Section 125 not only helps employees save money but also encourages participation in health-related programs that benefit the workforce as a whole.
While Section 125 health plans are beneficial on their own, BrightPath’s Preventative Care Management Program (PCMP) takes the process a step further by providing a fully managed, IRS-compliant solution that minimizes the employer’s administrative burden.
Here’s why businesses trust BrightPath’s PCMP to enhance their Section 125 health plans:
BrightPath ensures that your program meets all IRS, ACA, and HIPAA regulations, so you never have to worry about non-compliance.
BrightPath handles all the setup, integration, and ongoing management, leaving your HR team to focus on other important tasks.
Employees fund their own benefits through payroll deductions, meaning there are no additional costs for the employer to cover.
Employees are more likely to enroll when they see a hassle-free, fully managed program that enhances their benefits without reducing their take-home pay.
Yes! In a Section 125 health plan, employees pay for their own health benefits through payroll deductions, so employers don’t need to contribute to the costs.
No, participation is voluntary. However, most employees choose to enroll because of the tax savings and the ability to increase their take-home pay.
Employers can save by reducing payroll taxes (FICA and FUTA) because employees are paying for their benefits pre-tax, which lowers the total taxable income.
BrightPath’s PCMP is a fully managed, hassle-free solution that requires no HR involvement. It simplifies the setup, enrollment, and compliance process for employers while providing enhanced benefits to employees.
If you’re looking to implement a Section 125 Health Plan that reduces payroll taxes, enhances employee benefits, and boosts overall satisfaction, BrightPath’s PCMP is the ideal solution.
