Section 125 — A Referral Guide for CPAs and Accountants

CPAs don't draft Section 125 plan documents, run nondiscrimination testing, or operate wellness platforms. That's a plan administrator's job. But CPAs do advise clients on tax structure — and Section 125 Preventive Care is one of the cleanest payroll-tax structures available to W-2 employers. This guide is the CPA-facing playbook for adding it to your client conversations without taking on operational work.

The math, your client's perspective

Section 125 of the Internal Revenue Code (in force since 1978) lets employers structure $1,200/month of an enrolled W-2 employee's salary as a pre-tax salary reduction that funds a HIPAA-compliant participatory wellness program. The Preventive Care variant adds a post-tax wellness reward that returns ~$1,000/month to the employee's paycheck.

Net effect on a per-employee basis:

• Employer FICA savings: $1,101.60/year (7.65% × $14,400 annual reduction)
• Less program admin fee: $420/year ($35/month)
• Net employer savings: $681.60/W-2 employee/year
• Employee net take-home raise: $71.96/paycheck ($863/year)
• Employer Workers' Comp reduction: 30–60% real-world at next audit cycle (because WC base = taxable payroll, which Section 125 reduces by definition)

For a 50-employee client, that's $34,080/year in net FICA + WC reduction at zero operational disruption.

Run the math for any specific client →

Why this works for CPAs as a referral lever

Section 125 sits in your professional sweet spot: it's tax structure, it's based on a 47-year-old federal statute, it has a published 2025 legal opinion behind it, and it's been independently reviewed by a top-7 U.S. accounting firm. Your clients ask you "is there anything else we can do to reduce payroll taxes?" — Section 125 Preventive Care is the answer most often.

The handoff is clean: you advise, the plan administrator operates. Your role at the client doesn't change — you stay the trusted tax advisor. The plan administrator team (Virginia Fish, CPA, at ACA Solutions Hub in Aliso Viejo, CA) handles the implementation work. You earn recurring referral compensation while your client is enrolled.

The compliance record

• HitesmanLaw P.A. (May 5, 2025): 8-page formal legal opinion from Darcy L. Hitesman, J.D. — Super Lawyer-rated ERISA attorney, AV-rated since 1998, co-author of the national ERISA compliance manual (Thomson Reuters / EBIA), member of the ECFC Technical Advisory Group. Opinion specifically addresses the IRS Chief Counsel Advice memoranda on "double-dip" arrangements and concludes this program is structured differently and compliantly.
• CBIZ Advisors LLC (August 22, 2025): Top-7 U.S. accounting firm, 135,000+ clients. Independent review confirms compliance with IRC §§ 125, 105, 106, ERISA, ACA, and COBRA when operated per its provisions.
• IRS Rev. Rul. 69-154, Situation 3: the specific published IRS authority supporting the indemnity-benefit-payment structure.
• $500,000 insurance-backed legal protection per enrolled employer + $10,000 per employee participant.

→ Full compliance authority page · IRS.gov — Cafeteria Plans

How CPAs typically introduce it

The most common pattern in our network:

1. At year-end planning — when discussing payroll-tax structure for the coming year. "There's an additional Section 125 lever we should look at — it's a Preventive Care variant verified compliant by CBIZ in 2025, returns $681/employee/year net FICA savings."
2. At client retention conversations — when a competitor or a payroll firm is sniffing around. The Section 125 layer becomes a structural retention story.
3. At audit-prep / Q4 reviews — when reviewing W-2 totals, you can flag the Section 125 line in Box 14 and note whether the client is on a partial or complete plan.

Operational reality check

What you're not doing as the CPA:

• Not drafting the plan document — that's the plan administrator's job, with its own document templates and IRS-compliance review.
• Not running nondiscrimination testing — IRC § 125(b) and § 125(g) testing is run annually by the plan administrator.
• Not handling carrier relationships — the licensed indemnity carrier the wellness reward flows through is the plan administrator's relationship.
• Not carrying the audit-defense liability — that's covered by the program's $500K legal protection.

What you are doing:

• Reviewing the Hitesman opinion + CBIZ letter with the client (both share-able PDFs).
• Running the projected savings against the client's specific facts.
• Advising on go/no-go based on your judgment.
• Confirming W-2 reporting is correct after enrollment (Box 1, 3, 5 reductions; Box 14 disclosure).

The case-study set

Three CPA / attorney / advisor verifiers in our public record, in case your client asks for evidence:

• Brandon Zora — CEO and CPA at Black Tiger Transportation (66-employee Southern CA medical transport). Reviewed every relevant IRS code himself before enrolling. Annual savings: $140,000. Read his case study →
• Ariel Joudai, CPA — CFO at Affinity Hospice (multi-state). Commissioned the CBIZ review before enrolling his organization. Reported $140K+/yr in combined savings. Read his case study →
• Dan Salceda — Owner and practicing attorney at Golden Living Point Loma (51-employee San Diego assisted living). Read the IRS codes himself before enrolling. Annual savings: $120,000. Read his case study →

Next step

Download the Broker / CPA Toolkit → — 3-page PDF with the math reference, talking points, and compliance citations.

Book the 15-min broker intro call → to walk through your client portfolio and the referral compensation structure.

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