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Tax Code - Section 125

The secondary objective is to encourage companies to offer such plans in the first place. By making it easier for employees to pay for benefits, Section 125 allows companies to provide more in the way of shared expense benefits. Furthermore, the Employer's contribution to Social Security is diminished.

Section 125 of the IRS tax code enables companies to establish a process to apply employee contributions before taxes are computed. This actually reduces the employees' taxable income by the amount they are contributing. The value of the benefit equals the employees' tax rate, including what is contributed to Social Security. Therefore, the minimum "tax subsidy" is approximately 22%. The employer saves about 7.5%. This is beneficial for most benefits (See caveat below) and absolutely critical for any contributory retirement plan.

To qualify, the Employer must create an approved format of a "Plan Document" and they must recertify this plan on an annual basis. The guts of the "Plan Document" are documented proofs that benefits have been offered to all qualified employees and that each has either enrolled or waived. The Plan Document should be updated during each open enrollment period, and should be readily available in the event of an unplanned audit.

Cost

Any viable payroll service or adept bookkeeper can establish such a plan. Typically, there is a set-up cost in the neighborhood of $500 for the service, plus an annual maintenance fee of roughly $250 - $350.

OR you may have this work done for you at no cost. To find out how, visit the AFLAC page.

There is one caveat to rolling employee benefits into a Section 125. It is NOT recommended for benefits that pay out in what would be considered taxable income. This includes specifically, Disability payments and any cash value style life insurance.