What are Section 125 Flex Plans?
Commonly referred to as cafeteria plans or flexible spending arrangements, a Section
125 plan (or flex plan) is an innovative program that saves employers and
participants valuable tax dollars. It is also an attractive benefit plan to offer
employees. Flex plans are governed by the Internal Revenue Code which includes
Section 125, which is how the name is derived.
These plans allow participating employees to pay for a variety of expenses with
pre-tax dollars instead of using after-tax dollars, or take-home pay. Using a
company’s flex plan, a participant can redirect a portion of pre-tax salary to pay
for qualified personal expenses.
Why offer a flex plan?
The main reasons employers offer flex plans:
- It is one of the most commonly requested benefits today.
- Flex plans provide a way for an employer to reduce payroll taxes.
- Lower tax outlays can defray the cost of administrating a flex plan.
- It is one of the few employee benefit programs that could actually pay for itself.
- Flex plans provide a way for employees to save money in the purchase of essential services, which helps companies retain employees and build morale.
- Flex plans provide a solution for employees to manage the rising costs of essential services such as medical and dependent care expenses.
- Flex plans are widely considered a win-win benefit opportunity for both an employer and employee.