Section 125 Plan Cost: What Employers Actually Pay, Keep, and Gain (2026)

May 14, 2026 • 14 min read

The right question is not what a Section 125 plan costs. It is what you net after paying for it. Summit Health Benefits charges $35 per enrolled employee per month as a fully managed platform. Employer FICA recapture averages $91 to $136 per enrolled employee per month. Net employer savings after the fee run $56 to $101 per enrolled employee per month, starting the first payroll.

The question employers ask is "what does a Section 125 plan cost?" The question that actually matters is "what do I net after paying for it?"

At Summit Health Benefits, the administration fee is $35 per enrolled employee per month. Employer FICA recapture on a typical enrollment averages $91 to $136 per enrolled employee per month. The math runs in one direction: your FICA savings exceed our fee from the first payroll your plan is active. Net employer gain after our fee: $56 to $101 per enrolled employee per month, recurring.

Your employees do not pay for this plan. Their take-home pay goes up an average of $70 to $110 per month from the moment the plan is active. Not after a year. Not after an audit. The first payroll.

TL;DR: Summit Health Benefits is a fully managed Section 125 platform. Administration is $35 PEPM. Employer net savings after the fee are $56 to $101 PEPM. Employee take-home pay increases $70 to $110 per month. No setup fee. No long-term contract. Written payroll-specific savings projection delivered in 48 hours.

Request your savings projection and see the exact numbers for your payroll before you commit to anything.

Table of Contents

  1. Why the Fee Is Not the Right Number to Focus On
  2. What Summit's $35 PEPM Actually Includes
  3. How Other Administrators Price Section 125 (And What They Leave Out)
  4. The Employer Math: FICA Savings to Net Gain
  5. The Employee Math: Why Take-Home Pay Goes Up
  6. Summit's Compliance Architecture: CCA 202323006 and Section 213(d)
  7. How to Get Your 48-Hour Projection
  8. Frequently Asked Questions

Why the Fee Is Not the Right Number to Focus On

Most benefits vendors lead with features. We are going to lead with arithmetic.

Section 125 works because employees pay for qualified benefits with pre-tax dollars. That reduces taxable wages. Reduced taxable wages mean lower employer FICA. The employer FICA rate is 7.65% of taxable payroll. On a $1,200 per month pre-tax contribution per employee, the employer saves $91.80 per month in FICA, per employee.

That savings exists because of the plan. The administration fee is the cost of operating the plan. When the savings are $91 to $136 per employee per month and the fee is $35 per employee per month, the plan does not cost you money. It generates money. Paying $35 to recapture $91 to $136 is not a benefit expense. It is a return on a payroll tax strategy.

The question should be: "Is my return positive?" Not: "Is $35 cheap enough?"

For every employer we work with, the return is positive from the first payroll. This is not a promise about long-term projections. It is arithmetic on your current payroll dollars.

What Summit's $35 PEPM Actually Includes

Summit Health Benefits is not a plan-document vendor. We are a managed benefits platform. There is a difference, and it matters when you are comparing quotes.

What the $35 per enrolled employee per month includes:

  • Section 125 plan document, adoption agreement, and Summary Plan Description. IRS-compliant, employer-specific, adopted before your plan year begins.
  • Annual nondiscrimination testing. Required for all Section 125 plans. Included in the administration relationship, not billed as a separate engagement.
  • IRS-limit amendments. When contribution limits change annually, your plan documents are updated automatically.
  • Payroll integration. We coordinate with major US payroll platforms to ensure pre-tax deduction codes match your plan document. The document and the payroll have to match; we make that happen.
  • Year-end W-2 reconciliation. We verify that Box 1 wages reflect pre-tax elections correctly and that employee W-2s will not generate confusion at tax time.
  • Audit-defense file retention. Plan documents, election records, testing results, and amendment history are retained in a format that supports IRS or DOL inquiry response.
  • Multi-language employee education and enrollment. We do not hand you a PDF to distribute. We build enrollment communication that explains the pre-tax benefit in language your employees actually understand, in the languages your workforce speaks.
  • Written employer-specific savings and ROI projection. Before the plan launches, you receive a written projection showing expected FICA recapture, administration costs, and net gain based on your actual payroll and enrollment.

What there is no charge for:

  • Setup fee: $0
  • Long-term contract: none
  • Per-amendment fees for routine IRS limit updates: $0

The $35 PEPM is the fee. Everything above is included.

How Other Administrators Price Section 125 (And What They Leave Out)

Understanding market pricing helps you evaluate what you are actually buying when a vendor quotes you a number.

| What you are buying | Typical market pricing | Summit Health Benefits |

|---|---|---|

| POP plan document only (one-time) | $100 to $249 | Included in administration |

| Annual plan document renewal | $35 to $150/year | Included |

| Summary Plan Description | Often extra, $75 to $200 | Included |

| Nondiscrimination testing | $150 to $400 per test cycle | Included |

| IRS-limit amendments | $100 to $300 each | Included |

| Payroll integration support | Rarely included at low-cost tiers | Included |

| W-2 reconciliation | Often excluded | Included |

| Audit-defense file retention | Rarely included | Included |

| Employee education and enrollment | Usually extra or generic | Included, multi-language |

| Written ROI projection before launch | Almost never offered | Included, 48-hour turnaround |

| Administration fee | $5 to $15 PEPM (platform) or $500 to $2,000+/year (broker bundle) | $35 PEPM |

The "free" plan trap. Some administrators advertise free Section 125 plan administration. The costs are embedded in insurance commissions, carrier arrangements, or reduced service scope. Ask specifically what is included and how the vendor is compensated. The most common exclusions at the free or low-cost tier: nondiscrimination testing, W-2 reconciliation, and any meaningful payroll integration support.

The platform versus the document. A vendor charging $5 to $15 PEPM typically provides a technology platform where employees log in and make elections. The legal documents exist. Payroll integration may require your team to configure it. Employee communication is template-based. Compliance oversight is your responsibility. Summit charges more per employee because we handle more per employee. Every item in the list above is our work, not yours.

The Employer Math: FICA Savings to Net Gain

The FICA savings calculation is not complicated. It is multiplication.

FICA savings formula:

Total monthly employee pre-tax contributions x 7.65% = Monthly employer FICA savings

At different enrollment scales:

| Enrolled employees | Avg. monthly pre-tax contribution | Monthly FICA recapture | Monthly Summit fee | Monthly net employer gain |

|---|---|---|---|---|

| 10 | $1,200 | $918 | $350 | $568 |

| 25 | $1,200 | $2,295 | $875 | $1,420 |

| 50 | $1,200 | $4,590 | $1,750 | $2,840 |

| 100 | $1,200 | $9,180 | $3,500 | $5,680 |

These figures use a single contribution amount for illustration. Actual enrollment will vary by employee. The net gain column scales directly with enrollment and contribution level.

Where the fee comes from. The $35 PEPM is paid from the employer's reduced quarterly 941 FICA deposit, not from operating cash. The mechanism: pre-tax benefits reduce taxable wages, which reduces the FICA tax owed on the next 941 filing. The administration fee is sourced from that reduction. For most employers, the plan generates the cash to pay for itself within the same payroll cycle.

Employer math, in one line: $91 to $136 FICA recapture per enrolled employee per month. Minus $35 administration fee. Net employer gain: $56 to $101 per enrolled employee per month, recurring.

See your specific numbers in a written projection. 48 hours, no obligation.

The Employee Math: Why Take-Home Pay Goes Up

This is the part that surprises most employers. Employees do not pay for this plan. Their take-home pay increases when they enroll.

How this works:

Summit's managed benefit structure combines a Section 125 pre-tax contribution with an integrated employer-funded wellness benefit designed around substantiated qualified medical expenses under IRC Section 213(d). The combination is built so that the employee's net take-home pay is higher after enrollment than before.

The employee's taxable wages decrease when their pre-tax election is active. Lower taxable wages mean less federal income tax withholding, less Social Security, and less Medicare withheld from each paycheck. The wellness benefit adds to take-home cash.

The net result, across our enrolled population, is a verified take-home pay increase averaging $70 to $110 per month per enrolled employee, depending on state of residence and total contribution level.

Why this is not a gimmick. The tax savings are real and arithmetic-based. The wellness benefit is structured against substantiated medical expenses that the employee was already incurring. We are not creating artificial income. We are reorganizing the tax treatment of existing benefit and expense dollars so that the net position for the employee improves.

Employees with higher state income tax rates see higher take-home pay lifts because the pre-tax contribution reduces state taxable wages in states that follow federal pre-tax treatment. Employees in states that do not follow federal Section 125 treatment (New Jersey and Pennsylvania, for example) see a smaller but still positive take-home improvement.

Employee math, in one line: Take-home pay increases $70 to $110 per month. Net pay goes up, not down, the first payroll the plan is active.

Summit's Compliance Architecture: CCA 202323006 and Section 213(d)

Employer wellness reward arrangements have faced IRS scrutiny. In June 2023, the IRS issued Chief Counsel Advice Memorandum 202323006, which addressed the tax treatment of employer wellness rewards paid as cash or cash equivalents without substantiation of qualified medical expenses. The CCA concluded that unsubstantiated wellness cash rewards are includable in employee income.

Summit's integrated wellness benefit is designed around substantiated IRC Section 213(d) medical expenses, which is the compliant path identified by the IRS framework. Employees receive the benefit in connection with verified qualified medical expenses, not as an unsubstantiated cash payment.

The arrangement has been reviewed against CCA 202323006 and the July 2023 proposed Section 1.105-2 regulations. Summit holds a written legal opinion supporting the structure.

This distinction matters when you are comparing Section 125 products in the market. Some administrators offer wellness add-ons without the substantiation architecture. Those arrangements carry IRS exposure. Summit's legal review and written opinion on the structure is part of what the $35 PEPM administration relationship covers.

We maintain audit-defense file retention for all plan documents, testing records, and substantiation records. If your plan is ever questioned, you have a documented file and a written legal opinion to stand behind.

How to Get Your 48-Hour Projection

Every employer who contacts Summit receives a written, payroll-specific projection before the plan launches. The projection includes:

  • Your expected monthly FICA recapture based on your enrolled population and contribution levels
  • The monthly administration fee based on enrollment
  • Your net employer gain, month by month
  • The projected employee take-home pay lift by compensation band and state
  • An implementation timeline specific to your payroll system

The projection is produced in 48 hours. It is specific to your numbers, not a generic range. It is delivered in writing before you commit to anything.

There is no setup fee. No contract minimum. No trial period with hidden conversion pricing. If the projection does not show a positive net result for your business, you will know that before the plan starts.

Request your 48-hour savings projection or run the self-serve savings calculator to see a directional estimate now.

Frequently Asked Questions

How much does Summit Health Benefits charge for Section 125 administration?
Summit Health Benefits charges $35 per enrolled employee per month, billed monthly with no setup fee and no long-term commitment. This fee covers the full managed platform: plan document, adoption agreement, SPD, annual nondiscrimination testing, IRS-limit amendments, payroll integration, W-2 reconciliation, audit-defense file retention, employee education and enrollment, and a written pre-launch savings projection.
How much do employers actually save after paying the administration fee?
Employer FICA recapture averages $91 to $136 per enrolled employee per month, depending on contribution level. After the $35 PEPM administration fee, net employer savings are $56 to $101 per enrolled employee per month, recurring. These savings come from existing payroll taxes, not new spending. For a 25-employee company at the midpoint of these ranges, that is over $1,400 in net monthly savings beginning with the first payroll.
Does the $35 fee come out of our operating cash?
No. The administration fee is structured to be paid from the employer's reduced quarterly 941 FICA deposit. Pre-tax benefit contributions reduce taxable wages, which reduces FICA taxes owed. The administration fee is sourced from that reduction. For most employers, the plan generates the cash to cover the fee within the same payroll cycle the plan becomes active.
Does an employee's take-home pay go down when they enroll?
No. Summit's plan structure is designed so that employee take-home pay increases after enrollment, averaging $70 to $110 per month depending on state of residence and contribution level. The combination of pre-tax tax savings and the integrated wellness benefit produces a net positive take-home outcome. Net pay goes up, not down, starting the first payroll the plan is active.
What is IRS Chief Counsel Advice 202323006, and why does it matter?
CCA 202323006 is a 2023 IRS Chief Counsel Advice Memorandum that addressed the tax treatment of employer wellness reward arrangements. It concluded that cash wellness rewards not tied to substantiated qualified medical expenses under IRC Section 213(d) are taxable to the employee. Summit's wellness benefit is designed around substantiated Section 213(d) medical expenses, which is the compliant structure. The arrangement has been reviewed against CCA 202323006 and the July 2023 proposed Section 1.105-2 regulations, and Summit holds a written legal opinion supporting the structure.
Is there a minimum company size to work with Summit?
No minimum. Section 125 plans generate positive net savings for employers with as few as one participating W-2 employee. The per-employee math is the same regardless of company size. Small companies often see a higher proportional impact because their FICA savings represent a more meaningful percentage of their total payroll tax burden.
How long does it take to get a savings projection?
48 hours. The projection is specific to your payroll, enrollment, and state, not a generic estimate. It includes expected FICA recapture, the administration fee, net employer gain by month, and projected employee take-home impact by compensation band. It is delivered in writing before you commit to the plan.
Does Summit integrate with our payroll system?
Yes. Payroll integration with major US payroll platforms is included in the administration relationship. Summit coordinates with your payroll provider to ensure pre-tax deduction codes are configured correctly and match your plan document. The document and the payroll have to align for the tax treatment to be valid. We make sure they do.

Ready to See Your Numbers?

Most employers who request a projection are surprised by the net savings figure. The arithmetic is straightforward, but it is rarely presented clearly in the benefits market.

Summit Health Benefits delivers a written, payroll-specific projection in 48 hours, at no cost and with no commitment required. If the numbers do not work for your business, you will know that before the plan starts.

Request your 48-hour savings projection or run the savings calculator now.

This article is for educational purposes and does not constitute legal, tax, or ERISA advice. Individual employer savings depend on payroll structure, enrollment levels, state of operation, and employee contribution elections. Confirm all projections with a qualified benefits advisor before implementation.