Section 125 Plans: What you should know

What is a Section 125 Plan?


In a nutshell, Section 125 Plans (also known as Premium Only Plans, POP Plans, or Cafeteria Plans) makes insurance more affordable (sometimes, even free) for employees and corporations.

Here’s how it works:
A compliance document is filed for each employee in the company (these documents need to be updated each year, for more information, see Compliance Documents). Once documents are filed, employees’ insurance premiums can now be deducted BEFORE taxes are calculated. Due to the pre-tax deduction of high insurance premiums, employees save 20-40% of their premium deductions in JUST Federal income taxes alone; more savings can occur on city, state, federal, social security, and medicare taxes. Corporations also enjoy tax savings as the 7.65% employer matching Social Security and Medicare taxes.  Corporations may also enjoy federal and state unemployment tax exemptions, and depending on the state, may be eligible for worker’s compensation savings. It’s that simple — as long as the corporation stays in compliance, employees can enjoy the benefits of health insurance pre-tax and increase their take home earnings while corporations can enjoy significant tax savings as well.  NOTE: Compliance penalties ARE SEVERE — MAKE SURE DOCUMENTS ARE FILED PROPERLY!

For more information about Section 125 plans including helpful links please visit:

Davis & Hodgdon Associates has been assisting individuals and businesses in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].

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