What is a Section 125 Flexible Spending Plan?
Section 125 of the Internal Revenue Service Code permits employees to pay for certain expenses via payroll deductions before Federal, State and Social Security/Medicare taxes are applied. This is done through an employer sponsored plan. Section 125 plans typically have three plan components: • Premium Conversion Plan (POP) This portion of the plan allows employees to pay for their group insurance premiums (medical, dental and vision) with pre-tax income. • Flexible Spending Account (FSA) An FSA is used to pay for healthcare related out-of-pocket expenses such as co-pays, deductibles, prescriptions, dental work, glasses, etc. • Dependent Care Spending Accounts (DCA) This type of account is used to pay for dependent (usually child) care expenses incurred while employees (or their spouses) are at work. The portion of an employee’s salary which is deducted for use in the Section 125 plan is not subject to Federal, State or Social Security/Medicare taxes. As an added bonus, employers also s
