Qualified Benefits
| Benefit | Section 125 Eligible? | Notes |
|---|---|---|
| Health insurance premiums | Yes | Most common Section 125 benefit |
| Health FSA contributions | Yes | Subject to $3,300 limit in 2026 |
| Dependent care FSA contributions | Yes | Subject to $5,000 limit |
| Dental/vision premiums | Yes | Included in health insurance premiums |
| Group term life insurance | Yes (up to $50,000) | Excess coverage is taxable |
| Disability insurance | No | Cannot be offered through Section 125 |
| 401(k) contributions | No | Separate tax treatment |
Tax Savings
Section 125 plans reduce FICA taxes for both employers and employees. An employee who pays $5,000 in health insurance premiums through a Section 125 plan saves approximately $382 in FICA taxes (7.65% × $5,000). The employer saves the same amount in employer FICA taxes. For an employer with 100 employees each paying $5,000 in premiums, the employer FICA savings is approximately $38,200 per year.
Written Plan Requirement
Compliance Note
A written plan document is required for a valid Section 125 plan. Without a written plan document, employee premium contributions are not pre-tax — they are taxable income. The plan document must describe the benefits offered, eligibility rules, election procedures, and plan year. Update the plan document annually to reflect any changes in benefits or contribution limits.