Underrated and Underused
One of the most underrated and underused employee benefits available for small businesses today is outlined in section 125 of the U.S. tax code. A section 125 or “cafeteria” plan allows employees to withhold a portion of their pre-tax salary to cover certain medical or child-care expenses. Because these benefits are free from federal and state income taxes, an employee’s taxable income is reduced, which increases the percentage of their take-home pay. And because the pre-tax benefits aren’t subject to federal social security withholding taxes, employers win by not having to pay FICA–or workers’ comp premiums–on those dollars.
With so many advantages, why is the plan underused? The most likely reason is that these plans don’t generate a lot of profit for benefit administration companies, and with little profits to earn, only minimal advertising is done. That means many people are unaware of the plan even exists. But utilizing the tax code for your business can be an incredible way to enhance your employee benefits package while simultaneously boosting your margins.
