FICA Section 125
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| Item | Amount |
|---|---|
| Number of employees | — |
| Monthly premium per employee | — |
| Annual premium per employee | — |
| Total annual premiums (all employees) | — |
| FICA tax rate applied (employer + employee) | 7.65% each |
| Employer annual FICA savings | — |
| Employee annual FICA savings (total workforce) | — |
| Combined Annual Savings | — |
How Section 125 Reduces FICA Taxes
A Section 125 Cafeteria Plan (named after IRS Code Section 125) allows employees to pay certain benefits -- including health insurance premiums, FSA contributions, and dependent care expenses -- with pre-tax dollars.
When premiums are paid pre-tax, they are excluded from employees' taxable wages. This means both the employee AND the employer pay FICA taxes (Social Security 6.2% + Medicare 1.45% = 7.65%) on a smaller wage base.
For example: if an employee earns $55,000/year and pays $5,400 in annual health premiums pre-tax, FICA is calculated on $49,600 instead of $55,000 -- saving both parties 7.65% on that $5,400 difference. Multiply that across your entire workforce and the savings add up fast.
Note: Social Security taxes apply only up to the annual wage base ($176,100 for 2025). For employees earning above this threshold, only the 1.45% Medicare rate applies to wages above the cap. This calculator uses the full 7.65% rate as a conservative estimate for most employee salary levels.