Section 125 cafeteria plans in Bloomfield Hills, set up so the pre-tax savings hold
Every pre-tax payroll deduction for benefits runs through a Section 125 plan. Most employers have the deduction; fewer have the written plan and the annual testing that make it legal. We set up both, and pair it with FSA and HRA administration where you offer them.
A cafeteria plan lets employees pay their share of health, dental and vision premiums before income and payroll taxes. The employer saves its share of FICA on every dollar that moves pre-tax, which often covers the cost of running the plan several times over.
What a Section 125 plan can include
Premium-only plan. Pre-tax employee premiums for the group coverage you already offer. The simplest version, and the one most small employers need.
Health FSA. Employees set aside pre-tax money for out-of-pocket medical costs, up to the IRS limit ($3,400 for 2026). The plan decides whether unused money is forfeited, carried over or covered by a grace period.
Dependent care FSA. Pre-tax money for eligible child and adult care, with its own annual limit. See what counts as an eligible expense.
HSA contributions. Pre-tax payroll contributions to a health savings account, for employees on a qualified high-deductible plan.
What goes wrong most often?
The written plan document. The IRS requires it to be adopted before the plan year it covers, and a payroll deduction with no document behind it can lose its pre-tax status on audit. The second is testing: the plan must not favor highly compensated or key employees in eligibility, contributions or benefits, and the tests are run every year.
Can employees change their elections mid-year?
Only after a qualifying change in status, such as marriage, a birth, or a change in employment or coverage, and only in a way consistent with that change. Outside those events, elections are fixed for the plan year. Writing that rule clearly into enrollment materials prevents most mid-year disputes.
Common questions
Does a small employer need a Section 125 plan?
If employees pay any part of their premium through payroll and you want it pre-tax, yes. A premium-only plan is enough for many small groups. The saving runs both ways: employees pay less income and payroll tax, and you pay less FICA on the same dollars. The plan still needs a written document adopted before the plan year, even at the premium-only level.
Is there a filing with the IRS?
Not for most cafeteria plans. The requirements are the written document, consistent administration and annual nondiscrimination testing. What an IRS examiner asks for instead is the signed plan document, each year’s election records and the testing results, so keep all three together. We set up the document and help with the annual testing.
Can we offer cash instead of benefits?
A cafeteria plan can include a cash option, which then becomes taxable income. How that interacts with ACA affordability is worth checking before you offer it. An unrestricted cash option can count as part of the employee’s cost of coverage in the affordability test, which matters once you have 50 or more full-time employees.
Talk to us about Section 125 cafeteria plans in Bloomfield Hills
Book a 30-minute call and we will walk through Section 125 cafeteria plans in Bloomfield Hills for your team. Visit us at 41000 Woodward Avenue, Suite 350 East, Bloomfield Hills, MI 48304, or call 248.370.8853.
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