Business Tax Strategy · ProfitGuard Plus
How a small business lowers
payroll taxes with a Section 125 plan
A smaller employer pays the same employer share of FICA on every paycheck that a large one does. The saving here is per employee, so it works the same way at fifteen people as at five hundred. The number is just smaller, and the setup is no harder.
Quick answer
- The structure works from about ten full-time W-2 employees up. Below that the math gets small, though it is still worth asking.
- The employer saves about 500 to 600 dollars per participating employee per year in FICA, repeating every payroll.
- Fifteen participating employees is roughly 9,000 dollars a year back to the business. Fifty is roughly 30,000.
- It is not a new budget line. The saving comes out of payroll taxes already being paid.
- Employees keep the same gross pay, take home about 40 to 80 dollars more per paycheck, and receive about 1,400 dollars a year in preventative care.
- Two gates: full-time W-2 employees earning about 17,000 dollars a year or more, each with major medical coverage somewhere.
- It requires a qualifying ACA medical plan, so a business with no medical coverage at all has to solve that first.
- Setup runs 30 to 45 days and the owner's part is light: headcount, payroll provider and a few details.
The math at a smaller headcount
The employee makes a pre-tax election under a Section 125 cafeteria plan, which lowers the wages employer FICA is figured on. About 600 dollars per participating employee per year is what that comes to for a typical team, and it repeats every payroll rather than arriving once.
At fifteen participating employees that is roughly 9,000 dollars a year back to the business, plus about 21,000 dollars in preventative care landing on the team. At fifty it is roughly 30,000 and 70,000. Your exact number depends on payroll, participation, and state and local tax.
What a smaller employer usually worries about
We cannot afford a new benefit
It is not a new cost. Gross compensation does not change and the value comes out of payroll taxes already being paid.
We do not have HR for this
Plan documents, payroll integration and enrollment are handled for you, and there is a mock payroll before go live. The owner supplies headcount, the payroll provider and a few details.
We already have a benefits package
This stacks on top. Medical, dental, vision and retirement stay exactly as they are.
Our people cannot take a pay cut
Nobody does. Gross pay is unchanged and take home pay goes up about 40 to 80 dollars a paycheck.
Where the real floor is
Not a headcount rule so much as two gates. Employees have to be full-time W-2 earning about 17,000 dollars a year or more, and each participating employee has to have major medical coverage somewhere. That can be your plan, a spouse's or parent's plan, Medicare or the marketplace.
A business running only 1099 contractors has nothing to run this through. That one is a hard no. The rest is on who qualifies, and who does not.
Frequently asked questions
How small is too small for a Section 125 payroll tax plan?
It works best from about ten full-time W-2 employees up, because the saving is per employee. Smaller teams can still ask. The structure is the same and the number is just smaller.
How much does a fifteen person business save?
At about 600 dollars per participating employee per year, roughly 9,000 dollars a year in employer FICA, repeating every payroll, plus about 21,000 dollars in preventative care benefits landing on the team.
Do I need to already offer health insurance?
Yes, in effect. The plan is paired with a qualifying ACA medical plan and each participating employee needs major medical coverage somewhere, though it does not have to be your plan.
What does it cost the business to set up?
It is not a new line on the budget. Gross compensation stays the same and the value comes out of payroll taxes already being paid.
I only have 1099 contractors. Does this work?
No. This runs through W-2 payroll. Without W-2 employees there is nothing to run it through.
This is education, not tax or legal advice. Actual savings vary by payroll structure, participation, and state and local tax. Talk to your CPA about your specifics before you decide. ProfitGuard Plus is a marketing name for a structure built on IRS code sections 125, 106(a), 105, and 213(d).
See your ProfitGuard Plus number
Enter your W-2 headcount and see the combined value first. Then we'll run your exact numbers. You can also read the full walkthrough on the ProfitGuard Plus page or call +1 (586) 899-1003.
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