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Section 125 FICA Savings Calculator

Calculate how much your company saves in FICA taxes by offering a Section 125 cafeteria plan. Pre-tax health premiums, FSA, HSA, and DCAP contributions all reduce employer payroll taxes.

Step 1 — Your Company

Company & Payroll Details

Enter your basic company information. These numbers drive the core FICA savings calculation — the more employees contributing pre-tax, the more you save.

Number of Eligible Employees ?Full-time employees eligible for your Section 125 plan. Include all employees who participate in or are eligible for pre-tax benefit deductions. Part-time employees working 30+ hours may also be eligible under ACA rules.Source: IRC Section 125; IRS Notice 2012-9

Average Annual Salary ?The average gross annual salary across all eligible employees. This determines which employees are above the Social Security wage base ($184,500 in 2026) and only save the Medicare portion (1.45%) rather than the full FICA rate (7.65%).Source: SSA wage base 2026; BLS average wage data

Avg Employee Health Premium Contribution (per month) ?The average monthly amount each employee contributes toward health plan premiums via pre-tax payroll deduction under your Section 125 plan. This is the employee share only, not the total premium. The national average is about $100-$500/month depending on coverage tier.Source: KFF 2025 EHBS; average employee contribution to premiums

Step 2 — Additional Pre-Tax Benefits

FSA, HSA & DCAP Participation

Section 125 lets employees contribute to flexible spending accounts, health savings accounts, and dependent care accounts on a pre-tax basis. Each dollar contributed saves both employer and employee FICA taxes.

FSA Participation Rate 30% ?Percentage of eligible employees who participate in a Healthcare Flexible Spending Account (FSA). The 2026 annual limit is $3,400 (IRS Rev. Proc. 2025-32). Average participation rates are 25-40% of eligible employees.Source: EBRI; IRS Rev. Proc. 2025-32; average FSA participation rates

Average FSA Election ?Average annual FSA election amount per participating employee. The 2026 maximum is $3,400. The average election is typically $1,500-$2,500.Source: EBRI FSA Database; IRS annual limits

HSA Participation Rate 20% ?Percentage of eligible employees contributing to a Health Savings Account (HSA). Only employees enrolled in a qualifying HDHP can contribute. 2026 limits: $4,400 individual / $8,750 family.Source: IRS Rev. Proc. 2025-19; Devenir HSA Research Report

Average HSA Contribution ?Average annual HSA contribution per participating employee (employee portion only). 2026 limits: $4,400 individual / $8,750 family. Average contributions are $2,000-$4,000.Source: Devenir 2024 HSA Report; IRS annual limits

DCAP Participation Rate 10% ?Percentage of eligible employees using a Dependent Care Assistance Program (DCAP/DCFSA). The 2026 annual limit is $7,500 ($3,750 if married filing separately). Typical participation is 5-15%.Source: IRC Section 129; EBRI; IRS Publication 503

Average DCAP Election ?Average annual DCAP election per participating employee. The 2026 limit is $7,500 ($3,750 married filing separately). Average elections are $3,000-$5,000 for participating employees.Source: IRC Section 129; average DCAP election data

Your Results

Section 125 Tax Savings Analysis

Your total employer and employee tax savings from pre-tax benefit deductions under IRC Section 125.

Total Annual Employer FICA Savings

$0 per employee per year

7.65% FICA on total pre-tax deductions (6.2% SS + 1.45% Medicare)

Total Annual Employee Tax Savings

$0 per employee per year

FICA (7.65%) + estimated federal income tax (~22%)

Combined Total Annual Savings

Employer + Employee tax savings combined

Savings Breakdown by Benefit Type

Benefit	Participants	Total Pre-Tax $	Employer FICA Saved	Employee Tax Saved

With Section 125 vs Without

Metric	Without S125	With S125	Savings

Annual Savings by Category

Employer FICA

Employee Tax

Implementation ROI

Est. Annual Admin Cost

TPA + compliance

Net Employer Savings

After admin costs

ROI

Savings / Admin Cost

Built on Real Data — Not Guesswork

This tool uses current IRS tax rates and contribution limits, calibrated to 2026 tax year data.

IRS Publication 15

Federal FICA tax rates: 6.2% Social Security + 1.45% Medicare = 7.65% employer share. 2026 SS wage base: $184,500.

IRC Section 125

Cafeteria plan rules allowing pre-tax deduction of health premiums, FSA, HSA, and DCAP contributions from taxable wages.

SSA Wage Base Updates

Social Security Administration annual wage base adjustments. Employees above $184,500 (2026) only save the Medicare portion (1.45%).

Get a Free Custom Report

Get a detailed Section 125 implementation report with your specific numbers — prepared by a BENEFITRA advisor.

Calculation Methodology

How This Calculator Works

Employer FICA Rate: 7.65% (6.2% Social Security + 1.45% Medicare) on wages up to $184,500 (2026). Above that, only 1.45% Medicare applies.
Employer Savings = Total pre-tax deductions across all employees × 7.65% (or 1.45% for wages above SS cap)
Employee Savings = Pre-tax deductions × (7.65% FICA + ~22% marginal federal income tax rate) = ~29.65% total tax savings
SS Wage Base Cap: $184,500 (2026). Employees earning above this save only the Medicare portion (1.45%) on employer side.
Admin Cost Estimate: $4-6 per employee per month for TPA services, plus ~$1,500 setup/compliance cost amortized
FSA Limit: $3,400 (2026); HSA Limit: $4,400 individual / $8,750 family (2026); DCAP Limit: $7,500 (2026)

Disclaimer: This calculator provides estimates for educational purposes. Actual tax savings depend on individual employee wages, tax situations, and plan design. Data sources: IRS Publication 15, IRC Section 125, SSA, EBRI. Calibrated to the 2026 tax year.

How a Section 125 plan cuts payroll taxes

A Section 125 cafeteria plan lets employees pay for qualified benefits with pre-tax dollars. Because those dollars come out before payroll taxes, both the employee and the employer pay less. For the employer, the saving is the FICA match, currently 7.65 percent (6.2 percent Social Security plus 1.45 percent Medicare), on every dollar employees route through the plan.

The savings add up faster than most employers expect. A premium-only plan, the simplest form of Section 125, captures employer FICA on health premiums alone. Adding an FSA, HSA contributions, and a dependent care account widens the pre-tax base and the saving with it.

To put the recovered dollars to work, run the Benefits Savings Strategy Builder for the other efficiency levers, or the Benefits ROI Calculator to model the return on reinvesting them.

Pre-tax items a Section 125 plan can cover:

Health, dental, and vision premiums
Health flexible spending account (FSA) contributions
HSA contributions made through the plan
Dependent care (DCAP) contributions

The rules for cafeteria plans are set by the IRS.

Frequently asked questions

How much can an employer save with Section 125?

The employer saves its FICA share, 7.65 percent, on every pre-tax dollar. The total depends on how many employees participate and how much they route through the plan.

What benefits qualify for pre-tax treatment?

Common qualified items include health, dental, and vision premiums, health and dependent care flexible spending accounts, and HSA contributions made through the plan.

Is a Section 125 plan hard to set up?

A premium-only plan is straightforward and requires a written plan document and basic nondiscrimination testing. The administrative lift is modest relative to the savings.