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Flexible Benefit Plans Save Tax Dollars

Employers and employees can save tax dollars with a flexible benefit plan. Allowed under IRS code section 125, a flex plan (also referred to as a cafeteria plan) allows pre-tax deductions for insurance premiums, specified medical expenses and dependent care expenses.

Generally, for amounts contributed through a flex plan, there are:

  • NO federal income taxes;
  • NO social security/medicare taxes; and
  • NO FUTA taxes.

Organizations that have a portion of health insurance pemiums paid by employees can benefit from a flex plan. The employer can save 7.65 percent on every dollar the employee spends on health insurance.

Company Savings Example:

Five employees each pay $25 per bi-weekly pay period for insurance ($650 per year each)
 $3,250
One employee pays for family coverage at $125 per bi-weekly pay period
 $3,250
Total Annual Employee Deductions
 $6,500
7.65% SAVINGS by employer for the year
 $ 497
    Flex Plan Choices

    Recordkeeping & Consulting provides plan documents and administration for three types of flex plan arrangements:

  • Pre-tax payroll deductions to pay for insurance premiums.
  • Pre-tax payroll deductions to put aside for reimbursement of medical expenses.
  • Pre-tax payroll deductions to put aside for reimbursement of dependent care expenses.

    Ask for more information about how a flexible benefit plan may assist your organization.

    Note: Key employees are limited to 25% of total pre-tax deductions. The plan must be offered without discriminating in favor highly-paid employees and/or owners. Owners of a sole-proprietorship, partners of a partnership and 2% shareholders of a Sub-Chapter S Corporation generally cannot participate.
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