How to Help Your Employees Maximize Their Pre-Tax Benefits

sticky note pinned to wall that says pre tax employee benefits


Did you know that sunscreen can be paid for using pre-tax dollars? Surprising, right? But it’s true! And that’s just one of the many pre-tax benefits your employees can enjoy with an employer-sponsored flexible spending account.

These kinds of tax savings are obviously a huge perk for employees. But they can also offer a distinct competitive advantage for employers, helping you stand out from the competition and attract and retain top talent with a compelling and flexible benefits package.

In this post, we’ll explore the ins and outs of Section 125 plans, delve into the variety of pre-tax eligible expenses employees can utilize, and discuss the importance of providing educational resources to help employees fully understand and maximize these pre-tax benefits. By the end, you’ll have a clear roadmap for how to help your employees save more and appreciate the comprehensive benefits your company provides.

Why You Should Consider Offering Section 125 Benefits

A Section 125 plan, also known as a Cafeteria Plan, is a flexible benefits program that allows employees to choose from a variety of pre-tax benefits, not unlike grabbing a tray and choosing the dishes you want from a cafeteria line. These plans enable employees to pay for eligible expenses such as healthcare premiums, dependent care, and even commuting costs with pre-tax dollars, effectively lowering their taxable income. This not only increases take-home pay but also enhances overall job satisfaction by offering tailored benefit options.

Implementing a comprehensive Section 125 plan provides a few notable advantages for both employees and employers, including:

Pre-tax Premiums for Medical and Dental Insurance

Employees can pay their medical and dental premiums with pre-tax dollars, reducing their taxable income and increasing their take-home pay. Covering premiums for their family as well enhances the value of this benefit, making it a significant perk that demonstrates the employer’s commitment to employee well-being.

Healthcare Flexible Spending Account (FSA) with a Carryover Provision

An FSA allows employees to set aside pre-tax dollars to cover eligible medical expenses, offering an average savings of 30 percent on healthcare costs. The carryover provision ensures that unused funds up to a certain limit can roll over to the next year, reducing the risk of losing unspent money. This isn’t just a paycheck deduction—it’s effectively more money in the employee’s wallet, providing a substantial boost to their financial health.

Limited Purpose FSA for Those with a Health Savings Account (HSA)

For employees who already have an HSA, a Limited Purpose FSA can be a game-changer. It covers dental and vision expenses, further leveraging tax-advantaged savings without interfering with their HSA contributions. This dual-benefit approach maximizes employees’ tax savings and enhances their ability to manage healthcare costs efficiently.

Dependent Care FSA

This benefit allows employees to use pre-tax dollars for dependent care expenses, such as daycare, after-school programs, and elder care. By easing the financial burden of dependent care, employers can help employees achieve better work-life balance, leading to higher productivity and job satisfaction.

While these benefits are great on paper, one notable downside to cafeteria plans is their complexity. These benefits won’t be as useful to your employees if they aren’t clear on how to take advantage of them. That’s why providing educational resources can be a real difference maker.

Provide Resources to Help Employees Understand Eligible Expenses

Providing employees with comprehensive resources to understand eligible expenses is crucial for maximizing the pre-tax benefits of Section 125 plans. When employees are well-informed about what they can purchase with pre-tax dollars, they can make smarter spending decisions and fully leverage their benefits.

Here are a few helpful tools we recommend:

The FSA Store

This dedicated online store is a one-stop shop for FSA-eligible products. It offers a wide range of items, from over-the-counter medications and medical supplies to menstrual products and personal care items. By directing employees to the FSA Store, employers can help them easily find and purchase eligible products, ensuring they make the most of their FSA dollars.

Amazon FSA Store

That’s right, Amazon has a designated FSA store! What else would you expect from the place that sells everything? Amazon’s FSA Store allows users to shop by category and price point, making finding the FSA-eligible items you need super easy. And since Amazon is such a widely recognized and used retailer, sharing this resource can get employees excited about starting to utilize their FSA funds effectively and save on everyday healthcare expenses.

FSA Savings Calculator

This nifty tool from WageWorks can help employees estimate their potential tax savings based on their eligible expenses. All your employees have to do is enter their estimated annual tax rate and estimated annual eligible healthcare expenses. By showing employees how much they can save, employers can encourage greater participation in FSAs and other pre-tax benefit programs.

Connect Your Employees With a Benefits Expert

The tools above are awesome, but like we said, cafeteria plans are complex. If you really want to deliver value to your employees and put them in the best possible position to succeed, you should connect them with a benefits expert.

A dedicated benefits expert can provide personalized guidance, answer complex questions, and clarify the nuances of employer-sponsored plans. Also, access to a benefits expert shows how much you’re committed to investing in your employees’ health and financial security, which can go a long way toward keeping your team engaged and satisfied with their jobs.

Here at IBG, we have more than two decades of experience partnering with employers of all sizes to build benefits packages and empowering employees with the knowledge they need to get the most out of those benefits. If you want to talk through how you can create a benefit plan that’s truly tailored to the needs of your business and your employees, give us a call. We’d love to hear from you!


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