What’s the Difference Between a Flexible Spending Account Section 125 and a Traditional FSA?
Many other employers may use other kinds of upcoming tax-deductible wellness benefits, like a Flexible Spending Account. So, what is the difference between a Section 125 Flexible Spending Account and a traditional FSA?
People often use the words as if they were the same, but they’re not. More importantly, neither of these choices is as good as Core360, a modern benefit plan that takes care of everything.
In this blog, we’ll break it down simply: What is a Section 125 Flexible Spending Account? What does a normal FSA look like? What makes them different? How does Health Sphere’s Core360 plan help your company grow even more?
Let’s get clear.
What Is a Flexible Spending Account Section 125?
A Section 125 Flexible Spending Account is a tax-saving arrangement that permits employees to pay for some benefits, such as medical and dependent care, on a pre-tax basis. The IRS classifies the Section 125 arrangement, which is commonly referred to as a “Cafeteria Plan” because employees can avail themselves of benefits from a menu.
The key advantage?
Tax cuts help both employers and workers. When workers put money into their FSA before taxes, it lowers their taxable income. This also lowers the company’s payroll taxes.
The type of FSAs that are used today is Section 125 FSAs because they work with Section 125 plans.
What Is a Traditional FSA?
A standard FSA is a certain kind of account that lets workers save money before taxes to pay for out-of-pocket medical costs like copays, pharmacy costs, or medical equipment.
It’s “traditional” in the sense that it only offers a single benefit, typically health-related, and doesn’t always come with broader advantages like dependent coverage or embedded compliance tools.
Traditional FSAs may also come with:
- Use-it-or-lose-it rules (funds may expire if not used in the plan year)
- Limited automation
- Basic compliance support
Side-by-Side Comparison: Section 125 FSA vs. Traditional FSA
Here’s a simple breakdown:
| Feature | Section 125 FSA | Traditional FSA |
| Based on IRS Section 125 | Yes | Not always explicitly |
| Pre-tax contributions | Yes | Yes |
| Covers multiple benefits (e.g., medical, dependent care) | Yes | Often limited to health expenses |
| Reduces payroll taxes for employers | Yes | Yes |
| Employee tax savings | Yes | Yes |
| Compliance tools built-in | Usually | Minimal |
| Use-it-or-lose-it rules | Often applies | Often applies |
| Customizable for broader workforce needs | Yes | Limited |
| Fully automated implementation | Varies by provider | Rare |
So, Where Does Health Sphere’s Core360 Plan Fit In?
The Core360 program from Health Sphere takes everything good about a flexible spending account Section 125 and goes much further.
It leverages Section 125, but also integrates two additional components:
- Preventative Care Management Plan (PCMP)
- Self-Insured Medical Reimbursement Plan (SIMRP)
Together, these three elements create one of the most compliant, benefit-rich programs available today, with no out-of-pocket cost to the employer and no reduction in take-home pay for employees.
In fact, with Core360, employees often see a 3–4% increase in net pay, while employers save around $600 per W2 employee each year. That’s a win-win.
Why Core360 Is the Smarter, Simpler Choice
While both Section 125 FSAs and traditional FSAs provide tax savings, they don’t come close to what Core360 delivers:
For Employers:
- Save ~$600/year per employee
- No out-of-pocket costs to implement
- Reduced healthcare claims (avg. $1,400 saved over 3 years)
- Fast, automated 30–45 day rollout
- Boost retention, morale, and performance
- Immediate bottom-line impact
For Employees:
- 3–4% increase in net take-home pay
- $0 copay Telehealth, mental health, and wellness support
- Mayo Clinic health tools and personalized dashboards
- Universal Life, Disability, Critical Illness coverage
- Family-first features: spouse and dependent coverage
- No change to current insurance plans
And most importantly, more than 40,000 employees are already enrolled in the Core360 program—proof that modern benefits can work for everyone.
Compliance Without Complexity
One of the biggest concerns companies have when evaluating benefit options is compliance.
Traditional FSAs often require employers to manage IRS testing, plan documents, nondiscrimination rules, and more.
Core360 eliminates that burden by offering a fully managed, turnkey solution that is compliant by design. From legal review to plan admin, Health Sphere handles it all.
No risk. No headaches. Just real benefits.
Why It’s Time to Move Beyond Traditional FSAs
If your company is still offering a basic FSA or hasn’t updated its Section 125 strategy in years, now is the time to rethink.
Core360 from Health Sphere isn’t just an alternative—it’s an upgrade. It’s designed for today’s workforce, today’s compliance needs, and today’s economic pressures.
- Help your people take home more money
- Support preventative, family-first health care
- Cut payroll tax waste—without cutting benefits
You can stay compliant, competitive, and cost-effective—all at once.
Frequently Asked Questions
- Is a Section 125 plan the same as an FSA?
No, an FSA is just one benefit offered under a Section 125 plan. Section 125 is the structure that allows certain benefits, like FSAs—to be paid with pre-tax dollars.
- Do employees really take home more pay with a Section 125 plan?
Yes! Pre-tax contributions lower taxable income. With plans like Core360, employees often see a 3–4% increase in their net take-home pay, without any change to what they currently pay out of pocket.
- What happens if an employee doesn’t use all their FSA funds?
Traditional FSAs follow “use-it-or-lose-it” rules. Unused funds may be lost at year-end, though some plans allow small rollovers. That’s why many employers prefer predictable, non-reimbursement plans like Core360.
- Can I add Core360 without replacing our current benefits?
Yes, Core360 works alongside your current benefits. It requires no carrier changes or plan replacements—just a simple add-on that improves value, saves money, and supports employee health.
Conclusion
Section 125 flexible spending accounts and traditional FSAs have some things in common, but they aren’t exactly the same. While FSAs are a part of a larger Section 125 plan, employers today have access to even better choices.
Programs like Core360 from Health Sphere go far beyond a typical FSA by combining Section 125 with a fully managed Preventative Care Management Plan (PCMP) and Specialized Insurance Medical Reimbursement Plan (SIMRP). That means bigger savings, stronger retention, and zero out-of-pocket costs for both you and your team.
If you’re looking for a compliant, cost-free way to improve employee well-being and increase take-home pay, Core360 is the smarter path forward.
Talk with an expert or request a free proposal today.
