ABC Compnay	Without a 125 Plan	With a 125 Plan
Annual Company Payroll	$300,000	$300,000
Employee Pre-Tax Premiums	$0	$29,000
Employee FSA Deductions	$0	$10,200
Taxable Payroll	$300,000	$260,800
FICA Tax  (7.65%)	$22,950	$19,950
Employer Savings	$0	$3,000

John Doe	Without a 125 Plan	With a 125 Plan
Gross Monthly Income	$2,000	$2,000
Family Medical Ins.	After-Tax	-$250
Family Dental Ins.	After-Tax	-$50
Unreimbursed Medical Expenses	After-Tax	-$100
Taxable Income	$2,000	$1,600
Federal Taxes (15%)	-$300	-$240
State Taxes (3%)	-$60	-$48
FICA (7.65%)	-$153	-$122
NET PAY	$1,487	$1,190
Family Medical Ins	-$250	Pre-Tax
Family Dental Ins	-$50	Pre-Tax
Unreimbursed Medical Expenses	-$100	Pre-Tax
NET TAKE HOME PAY	$1,087	$1,190

Notice how the employees medical insurance, dental insurance and unreimbursed medical expenses are subtracted from their gross pay BEFORE taxes are calculated rather than AFTER tax as in the lower half of the example.

In this example the employee’s spendable income has increased by $103.00 per month or $1,236.00 annually. The difference in monthly savings can now be used for additional benefits or more "grocery store" money.

Note: When taxable income is lowered, Social Security Taxes are also lowered. This may result in a lower benefit from Social Security at retirement.

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