Already have a Section 125 plan?
You may be missing $681+/employee.
By David Newman · Referral Partner, Section 125 Savings · San Pedro, CA · Last reviewed May 2026
About 30% of small businesses run a basic Premium-Only Plan (POP). They're technically “on Section 125” — but only for pre-tax health insurance. The full Preventive Care variant adds a structural ~$72/paycheck employee raise and full $681.60/employee/year employer FICA savings on top of whatever POP you already have. Find out which version you're running.
- ✓POP plans handle pre-tax health insurance only — no employee paycheck raise
- ✓Preventive Care variant adds wellness-reward layer (~$1,000/month per employee)
- ✓Full Section 125 saves $681.60/W-2 employee/year net of all fees
- ✓Plus 30-60% Workers' Comp reduction at next audit
- ✓Verified by CBIZ Advisors LLC + HitesmanLaw P.A. in 2025
Upgrade Assessment
one question · find out what your current plan is missing
Do your employees currently receive extra money in their paycheck from your cafeteria plan — beyond the pre-tax health insurance deduction?
The three tiers of Section 125 plan, ranked by what they capture
Tier 1 — No plan at all
An estimated 50%+ of small businesses with 10+ W-2 employees do not run any Section 125 cafeteria plan, despite the fact that IRC § 125 has been federal law continuously since 1978. The result: every dollar of employee health insurance premium gets paid with after-tax dollars, employer FICA is calculated on full gross wages, and the Workers' Comp premium base is undiscounted. The math is simple — they pay full freight. For a 50-employee operation, the unrealized savings is approximately $34,080/year in FICA + an industry-specific Workers' Comp reduction. None of which is recoverable retroactively.
Tier 2 — Premium-Only Plan (POP)
About 30% of small businesses run a Premium-Only Plan. A POP handles one specific function: it lets employees pay their share of group health insurance premiums with pre-tax dollars. That captures the FICA savings on the premium portion (~7.65% × the annual premium amount, typically $200-$400/employee/year of FICA savings depending on coverage tier). It's real, useful tax structure. But it's a fraction of what's available — and the employees see no paycheck change, no wellness benefits package, no Workers' Comp reduction, and no structural raise. For most operators on a POP, the question isn't whether the plan is correctly structured. It's whether they're aware that the Preventive Care variant exists and adds a substantially larger savings layer on top.
Tier 3 — Full Section 125 Preventive Care
The complete program adds a HIPAA-compliant participatory wellness program funded by an additional $1,200/month pre-tax salary reduction per W-2 employee. Total FICA-taxable wages reduction: $14,400/year per employee. Employer FICA savings: $1,101.60/year per employee. Net of the program's $35/month admin fee: $681.60/employee/year. Plus the structural ~$72/paycheck raise to every employee. Plus the wellness benefits package (24/7 telemedicine, 400+ free generic medications, dental savings up to 60%, mental health counseling). Plus the 30-60% Workers' Comp reduction at the next audit cycle. See the full POP vs Preventive Care comparison →
Why most operators on POP don't know about the upgrade
Standard benefits brokers handle group health insurance and don't typically introduce or operate Preventive Care variants — it's outside their carrier appointment scope. CPAs know about Section 125 but cannot operate one (it requires a plan administrator, wellness platform, licensed indemnity carrier, and $500K legal-protection backing — none of which CPA firms hold). The result: the upgrade exists, the math is mechanical, and most POP operators have never had it presented. The first time they see it is when a referral partner like David Newman, or a specialty broker, brings it directly. Why your CPA hasn't mentioned it →
Real-world: the upgrade math at common operator sizes
10-employee POP operator:upgrading to Preventive Care nets $6,816/year in additional FICA savings + a Workers' Comp reduction at your industry rate. 10 employees take home an additional $863/year each.
50-employee POP operator: upgrade nets $34,080/year in FICA + WC reduction. 50 employees take home $863/year each. On a 5% WC industry, the WC reduction layer adds approximately $18,000/year. Total combined: ~$52,000/year.
100-employee POP operator: upgrade nets $68,160/year in FICA + WC. 100 employees take home $863/year each. On a 9% trucking-rate classification, the WC reduction approaches $65,000/year. Total combined: ~$133,000/year.
How to verify the upgrade before signing
Three primary sources, all public: IRS.gov — Cafeteria Plans (the law in the IRS's own words), the federal statute at 26 U.S.C. § 125, and the 2025 HitesmanLaw P.A. opinion + CBIZ Advisors LLC review (both share-able PDFs available on your free 15-minute analysis call). Bring the documentation to your CPA — they'll confirm the structure works mathematically and won't create audit risk.
Verified by the Best in the Country
Skepticism is the right response. We don't ask you to take our word for it — we bring institutional proof that convinced CPAs, CFOs, attorneys, and insurance brokers to enroll their own companies.
Darcy L. Hitesman, J.D.
35+ years as an Employee Benefits attorney specializing in IRC Section 125, ERISA, HIPAA, and the ACA. Her May 5, 2025 opinion letter concludes: “In this firm's opinion, the Program described satisfies applicable IRS requirements.”
She specifically reviewed the IRS Chief Counsel Advice memoranda on "double-dip" arrangements — the exact schemes the IRS has flagged — and concluded this program is built differently and compliantly.
CBIZ Advisors LLC
CBIZ independently reviewed the program against IRC §§ 125, 105, and 106, plus ERISA, ACA, and COBRA requirements. Their August 22, 2025 letter concludes: “If operated per its provisions, the Program appears to satisfy the requirements of ERISA, the ACA, and COBRA as well.”
This review was commissioned by Affinity Hospice's CEO before enrolling his nationwide organization — and the CFO (himself a CPA) shared the letter publicly in his testimonial.
Direct From the U.S. Government
Section 125 has been in the Internal Revenue Code since 1978. Congress wrote it there specifically to encourage employers to fund preventive healthcare for American workers. This is not a loophole — it is the precise, intended use of a 47-year-old federal law, grounded in IRS Revenue Ruling 69-154, the specific published ruling supporting the benefit payment structure.
→ Verify on IRS.gov — Section 125 Cafeteria Plans ↗What POP operators ask before upgrading
Content reviewed by Virginia Fish, CPA — tax and employer benefits specialist with 10+ years in financial reporting and payroll tax strategy.
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Verified: CBIZ Advisors LLC (Aug 2025) · HitesmanLaw P.A. (May 2025)
$500K legal protection per enrolled employer · IRS Section 125 · Federal law since 1978