Chamber 125 Plus™ is a program endorsed by the Orlando Regional Chamber of Commerce to provide Section 125 Premium Only Plan and Flexible Spending Account Administration to its members at reduced fees. In many cases the fees can be reduced to zero. In all cases, the fees are lower than for non-chamber members. The section below explains the tax-savings advantages of Section 125 Plans for employer-groups.


What is a Section 125 Cafeteria Plan?

Section 125 Plans are called by a variety of names: pretax plans, cafeteria plans, salary reduction plans, and salary redirection plans. But all these names refer to plans designed to reduce taxes for employers and their employees under Section 125 of the Internal Revenue Code.
Section 125 permits employees to pay for certain benefits before taxes through pre-tax deductions from their paychecks. These pre-tax deductions have the effect of lowering the employee's taxable income. Consequently, the employee pays less in FICA and Federal Withholding taxes. Most employer sponsored insurance plans qualify to be "pre-taxed." This includes employee-paid costs for medical insurance, dental insurance, group term life insurance and a variety of others. In addition, dependent-care expenses (usually child-care) and many kinds of vision, dental and medical expenses can be "pre-taxed."

Also, since the employer's portion of FICA is calculated based upon the employee's taxable earnings, the company will reduce its FICA tax liability by 7.65% of every employee dollar that is deducted before taxes. The employees' total tax-savings will usually range from 17.65% to 46.25% (marginal tax rate + FICA). Most employees fall into either the 22.65% or 32.65% category. This mean that every dollar "pre-taxed" will save an employee in the 25% marginal tax rate about 33 cents (25% + 7.65%). This is not a temporary saving which must be repaid at the end of the year when the tax return is filed. For both the employer and the employee, it represents permanent tax-savings (a true win-win).

The law requires that certain documents be put in place to set up and operate a Section 125 Cafeteria Plan. These include the Plan Document (kept up to date with changes in the law), Summary Plan Description, (where necessary) a properly executed Salary Reduction Agreement on each participant and (depending upon the group size and nature of the plan) preparation of the annual Form 5500. In addition, annual compliance testing must be performed to make sure the plan is not top-heavy (a maximum of 25% of contributions under the plan can come from owners and other "highly compensated" employees).

Since most payroll services and payroll software packages now make it easy to pretax insurance premiums, many employers, unaware of these requirements, simply begin making pretax deductions from their employees' paychecks without having ever properly set up a plan.

The IRS penalties for doing this can be severe!

The good news is that we can offer professional services to insure that you stay in compliance, to enjoy the tremendous tax-saving potential of Section 125, but never incur any penalties. If your company is a member of the Orlando Regional Chamber of Commerce, these services can be offered to you at a reduced charge, under the Chamber's endorsed program called Chamber 125 Plus. Chamber members can often reduce their costs to zero under a special benefit offer endorsed by the Chamber.