Introduction
When it comes to tax-advantaged health benefits, businesses often compare Section 125 Plans, Health Savings Accounts (HSA), and Flexible Spending Accounts (FSA). While all three offer pre-tax savings, they serve different purposes.
Comparison: Section 125 Plan vs. HSA vs. FSA
| Feature | Section 125 Plan | HSA | FSA |
| Pre-Tax Savings | Yes | Yes | Yes |
| Employer Payroll Tax Savings | Yes | No | Yes |
| Employee Tax Savings | Yes | Yes | Yes |
| Carries Over Yearly? | No | Yes | No |
| Eligible Expenses | Health premiums, FSAs, HSAs, child care | Medical, dental, vision | Medical, child care |
Which Plan Is Right for Your Business?
- Choose a Section 125 Plan if… you want to reduce payroll taxes while providing pre-tax health benefits for employees.
- Choose an HSA if… your employees are enrolled in a High-Deductible Health Plan (HDHP) and need long-term savings for healthcare expenses.
- Choose an FSA if… you want employees to set aside pre-tax dollars for short-term medical or dependent care costs.
Can Businesses Offer More Than One?
Yes! Many companies combine a Section 125 Plan with an HSA or FSA for maximum tax savings and flexibility.
Final Thoughts
A Section 125 Plan is the best option for employer payroll tax savings, while HSAs and FSAs are valuable for employee savings. The right choice depends on your company’s goals and benefits strategy.
Want to learn more? Contact us today for a custom benefits consultation.
