Cut Payroll Taxes
by Up to 7.65%
On Every Pre-Tax Dollar
It is not a gimmick or a loophole. It is Section 125, a piece of the tax code from 1978 that most companies never fully use. The math is straightforward, and most CFOs just have not been walked through it.
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The CFO's Guide to FICA Savings
Per-employee FICA math, savings by company size (25 / 50 / 100 / 250 / 500 employees), Section 125 implementation roadmap, and the audit traps that cost mid-market employers real money.
IRS Authority
Section 125 Cafeteria Plans: The Numbers
26 U.S.C. § 125
The IRS statute that lets employees pay for qualified benefits with pre-tax dollars. Been on the books since 1978.
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7.65% FICA Savings
The combined Social Security and Medicare tax your company pays on every payroll dollar. Pre-tax benefits skip it. Source: Social Security Administration.
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Savings Scenarios
Estimated Annual Employer FICA Savings
50 Employees
Annual employer FICA savings on pre-tax deductions
38 participants × $4,000 avg pre-tax deduction × 7.65% FICA (50 employees at 75%)
200 Employees
Annual employer FICA savings on pre-tax deductions
150 participants × $4,000 avg pre-tax deduction × 7.65% FICA (200 employees at 75%)
500 Employees
Annual employer FICA savings on pre-tax deductions
375 participants × $4,000 avg pre-tax deduction × 7.65% FICA (500 employees at 75%)
Process
How Section 125 Works
Set Up the Plan
A one-time plan document gets signed. It lists which benefits employees can pay for pre-tax: health premiums, FSAs, dependent care, supplemental coverage.
Employees Choose Their Benefits
At enrollment, employees decide which qualified benefits to pay for with pre-tax dollars. Payroll handles the deductions automatically after that.
The Company and the Employee Both Save
Every pre-tax dollar skips the 7.65% payroll tax, for the business and for the employee. Same benefits, same coverage, lower tax bill on both sides.
Compliance
CFO Questions Answered
Is This Legal?
Yes. Section 125 of the Internal Revenue Code explicitly authorizes cafeteria plans that allow employees to make pre-tax benefit elections. This is one of the most established tax-advantaged benefit structures in existence.
IRS-approved and widely used
What is the Compliance Risk?
Low, when the plan is set up correctly. There are two things the IRS wants: a written plan document, and annual testing to confirm the plan does not favor highly compensated employees. A third-party administrator handles both. Most of the risk we see in the wild comes from companies running pre-tax deductions without a written plan, not from Section 125 itself.
Proper setup = low risk
What Does Implementation Cost?
It depends on your company size and which benefits you include, so a licensed professional gives you exact pricing for your situation. There is usually a one-time cost for the plan document plus an ongoing third-party administration fee. The part you can verify up front is the employer side: you save 7.65% in FICA on every dollar an employee runs pre-tax (IRC Section 3111). A licensed pro can run your specific numbers so you can compare that cost against the savings.
A licensed pro runs your exact pricing
Want the real numbers for your company?
A short conversation with a licensed benefits professional. Bring your headcount and we will model the potential FICA savings, payback period, and total-benefits view for your situation. No hard sell.
Talk to DavidEducational Content Only: The information provided on benefitsgenius.co is for educational and informational purposes only. It does not constitute insurance, tax, legal, or financial advice. Consult with qualified professionals regarding your specific situation.
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