A Section 125 plan is the most common benefit plan offered by employer to their employees. It includes specific pre-tax benefits that employees can utilize during their employment and reduce their tax liability. The primary concern with the plan is whether it allows for reduce payroll taxes savings or not? Unlike a Lumara Health plan, does it offer comprehensive financial, mental health, and other medical benefits extended to family or not? Does it also offer a Self-Insured Medical Expense Reimbursement Plan?
Let’s see in detail what a traditional section 125 plan is, does it really reduce payroll taxes, what key employee benefits are offered by the plan, and what are the benefits of choosing the Lumara Health plan over this traditional plan.
What Is a Section 125 Plan?
A Section 125 plan, also known as a cafeteria plan, is an employer-sponsored benefits program that allows employees to pay for certain eligible expenses, such as health insurance, FSAs, HSAs, and dependent care, with pre-tax income. By reducing taxable income, it helps employees save on federal income and payroll taxes while also lowering the employer’s payroll tax obligations. The plan must comply with IRS regulations and offer employees the option to choose between taxable and non-taxable benefits as part of their compensation.
How Section 125 Plans Affect Payroll Taxes
Section 125 plans directly impact payroll taxes by reducing employees’ taxable income. When employees choose to contribute to benefits like health insurance, FSAs, or HSAs through a Section 125 plan, those contributions are deducted from their gross pay before taxes are calculated. This lowers the amount subject to federal income tax, Social Security (FICA), and Medicare taxes. As a result, employers also pay less in payroll taxes, particularly their share of FICA.
Employee Benefits Under a Section 125 Plan
A Section 125 plan offers employees the advantage of using pre-tax income to pay for eligible expenses, ultimately increasing their take-home pay and reducing taxable income. Here are common payroll tax saving benefits offered under the plan:
- Health insurance premium payments
- Dental and vision care coverage
- Flexible Spending Accounts (FSAs)
- Health Savings Accounts (HSAs)
- Dependent care assistance programs
- Commuter and transit cost savings
- Adoption assistance reimbursement options
- Limited-purpose FSA for dental/vision
Is a Section 125 Plan Right for Your Business?
A Section 125 Plan may be ideal for your business if you’re looking to reduce payroll taxes while offering employees valuable pre-tax benefits. It allows employees to pay for eligible expenses like health insurance, FSAs, and HSAs with pre-tax dollars, lowering their taxable income. Employers benefit through reduced FICA taxes and enhanced benefits packages without significant cost increases. If you’re focused on compliance, cost-efficiency, and employee satisfaction, implementing a Section 125 Plan can be a smart, strategic choice.
How Lumara Health Simplifies Section 125 Plans
The Lumara Health Plan is a modern, self-compliance payroll system built around a Section 125 pre-tax deduction structure. It combines a cafeteria plan framework with an integrated self-insured medical reimbursement model. The plan is fully automated, generating all necessary compliance documents, enrollment forms, and IRS-required notices without manual effort. It includes built-in non-discrimination testing and adapts to regulatory changes in real time. Lumara’s platform also features centralized tracking, simplified reporting, and automated payroll integration, ensuring accuracy, consistency, and regulatory compliance with minimal employer involvement.
Employer Benefits of Lumara Health
Lumara Health offers a smart, compliant solution that helps employers reduce payroll taxes and overall healthcare spending. It simplifies benefits management while supporting employee well-being and retention without adding administrative burden. Key employer benefits include:
- Save $600 annually per W2 employee
- Reduce overall healthcare costs by 5–10%
- Fully managed, IRS-compliant Section 125 plan
- No upfront costs or hidden fees
- Streamlined compliance and documentation
- Boosts employee satisfaction and retention
Employee Benefits of Lumara Health
Employees gain access to valuable healthcare resources and financial advantages through pre-tax payroll deductions. The plan improves their overall well-being, increases take-home pay, and supports both physical and mental health. Key benefits include:
- Increase net pay by up to $100/month
- $0 copays on covered healthcare services
- 24/7 access to telemedicine and virtual care
- Includes spousal and dependent health coverage
- Employee Assistance Program (EAP) for work-life support
- Mental health counseling and therapy options
- Mayo Clinic programs for advanced care access
- Addiction recovery and couples counseling support
Conclusion – Boost Profits & Employee Benefits Today!
Offering a Section 125 plan is a proven way to reduce payroll taxes by lowering employees’ taxable income through pre-tax benefit deductions. Employers save on FICA taxes, while employees enjoy increased take-home pay and access to valuable health benefits. This win-win strategy not only boosts financial efficiency but also enhances employee satisfaction and retention. Choosing Lumara Health ensures seamless administration, full IRS compliance, and a fully managed plan, making it the smart, hassle-free solution for maximizing payroll tax savings.
Discover How Much You Could Save with Section 125!
Get a free proposal today to see how Lumara Health can cut your healthcare costs and boost employee take-home pay.
