With IRC - Section 125 plans your employees are able to pay for eligible fringe benefits with "pre-tax" income, thereby reducing payroll taxes and increasing their take-home pay, or allowing them to purchase additional benefits to fit their particular needs, sometimes with no out-of-pocket cost.

IRC - Section 125 allows you, the employer, to adopt a plan that makes certain fringe benefit expenses "pre-tax" to your employees. By paying for eligible expenses with "pre-tax" income, the employee reduces their payroll taxes on the dollars elected as "pre-tax".

As the employer, you reduce matching payroll taxes on the income that your employees spend "pre-tax" on fringe benefits eligible under the Section 125 Plan.

You will save on matching FICA tax on every dollar made "pre-tax" by employees.

In some states you may also reduce Unemployment tax and Worker's Compensation premiums on the income made "pre-tax".

The employee will reduce Federal income tax on every dollar of income made "pre-tax". The exact savings will depend on the tax bracket of the individual employee.

The employee may also reduce State income tax on every dollar of income made "pre-tax".

The employee will reduce their FICA tax on the income made "pre-tax".

The savings for employees in the minimum tax bracket can be at least 20% on the income that is made "pre-tax" using the Section 125 Plan. Highly compensated employees may see a savings of 30% or more by using the Section 125 Plan.