How Does the Section 125 Tax Deduction Reduce Payroll and Income Taxes?
If you’ve ever stared at a paycheck and thought, “Where did all my money go?”, you’re not alone. Taxes chew up more than most people expect. Businesses feel it too. That’s where things like the section 125 tax deduction come into play. It’s not flashy. It doesn’t sound exciting. But it can quietly save a lot of money if you actually understand how it works. This blog isn’t dressed up in legal jargon. No stiff accounting talk. Just a real breakdown of section 125 health plans, how they work, and why people keep sleeping on them even though they shouldn’t. What Is Section 125 and Why It Even Exists? Section 125 comes from the IRS tax code. Not thrilling reading, trust me. But the idea behind it is simple. It allows employees to pay for certain benefits with pre-tax dollars. That means the money comes out of your paycheck before taxes are calculated. Less taxable income. Smaller tax bill. That’s the whole point. The section 125 tax deduction helps both employees and employers. Empl...