As businesses continue looking for smarter ways to enhance employee benefits without piling on extra costs, one key piece of the puzzle keeps popping up: IRS Tax Code Section 125. You’ve likely heard it mentioned in the same breath as cafeteria plans, tax savings, and flexible benefit offerings. But what role does it play when it comes to Flexible Spending Accounts (FSAs), especially moving into 2025?

Let’s break down the connection between Section 125 wellness plans and FSAs and examine what employers need to know in the future.

First, What on Earth is IRS Code Section 125?

Imagine IRS Code Section 125 as the law that permits employees to make benefit elections on a pre-tax basis. In other words, less taxable income, increased take-home pay, and savings for both employees and employers.

Flexible Spending Accounts, for medical bills, dependent care, and the like, come under Section 125. They enable workers to save some of their paycheck to pay for eligible out-of-pocket expenses prior to taxes being imposed.

But IRS Code Section 125 does more than merely sanction FSAs. With Elevate Benefits, we build upon this foundation by adding our combined Thrive Plan, which combines FSA functionality with robust wellness benefits for employees and their loved ones, all with $0 copays and no additional expense to the business.

2025 FSA Changes: What Employers Can Expect

Annually, contribution limit updates, carryover procedures, and eligibility rules can change the way FSAs function within a Section 125 arrangement. Here’s what matters in 2025:

1. Higher Employee Contribution Limits

With inflation still influencing healthcare expenses, the IRS has incrementally increased the ceiling amount for pre-tax FSA contributions. We anticipate these limits to increase further in 2025, allowing employees to contribute more towards out-of-pocket healthcare expenditures.

What does it mean to your business? It means larger tax savings for both parties. With more money flowing into FSAs under a section 125 wellness program, the taxable wage base is lowered even more.

2. Focus on Wellness and Preventive Care

Another significant change is the way FSAs are being perceived in a wellness context. The IRS still embraces preventative healthcare services as eligible FSA expenses. That’s where Elevate’s Thrive Plan really stands out.

We extend beyond the standard FSAs by combining holistic wellness tools within a Section 125 plan, such as:

• 24/7 telemedicine
• Mental health & counseling
• Addiction recovery support
• Family-wide virtual care
• Couples EAP and stress coaching
• Diet Tracking and Health Vitals Scan Tools

These are not just benefits, they’re preventative healthcare services that minimize medical claims and give your employees the tools to own their health, without depleting your HR and payroll teams.

How Section 125 Wellness Plans Like Thrive Revolutionize FSA Strategy

FSAs in isolation are helpful, but inconsequential. An individual FSA might assist someone in paying for a dental procedure or saving on prescription eyeglasses. But without additional wellness infrastructure, it does little to minimize claims, enhance retention, or advance culture.

That’s where Elevate’s Thrive Plan comes in, complementing your existing insurance and FSA configuration while driving both of them stronger without adding expense.

Here’s how it supports and enhances your current FSA benefits:

$100/Month Average Net Pay Boost

By reclassifying part of the payroll under Section 125, employees get to keep more take-home pay without extra work or disruption.

$0 Copays on Covered Care

No matter if it’s a visit with a therapist, primary care physician, or urgent care, employees and their families can receive care with no out-of-pocket expense, a benefit not found in typical FSAs.

Care for the Whole Family

Spouses and dependents receive the same benefits as the employee. That’s a huge step up from normal cafeteria plans or FSAs that restrict who can use what.

Fully Managed by Elevate

We take care of compliance, implementation, employee enrollment, and paperwork. It’s really hands-free for your HR department.

Financial Benefits to Employers: FSAs Plus Thrive = Highest Savings

When combined with our Thrive Plan, FSAs do more than just save workers money. They become a way for businesses to realize significant tax savings and lower health insurance costs.

Here’s how that works out:

• $600/year saved per W2 employee through lowered employer payroll tax contribution
• 5–10% reduction in annual health spending due to lower use of high-cost care
• $0 to implement or maintain the program
• No disturbance in current health plans or FSA provider arrangements

All this is enabled by IRS Code Section 125, which provides legal support to the pre-tax design and employer-sponsored wellness features of the plan.

Is Your FSA Offering Really Working Hard Enough?

Numerous employers use FSAs because they’re a common practice, not because they’re revolutionary. But if all you’re doing is providing a simple pre-tax savings account, you’re leaving much on the table.

Ask yourself:

• Are your employees using and fully aware of their FSA benefits?
• Are they receiving aid for mental health, family counseling, or preventative screenings?
• Are you taking full advantage of your Section 125 payroll structure?
• Are your benefits retaining and engaging employees, or simply checking a box?

If the answer is “no” or “not sure” to any of these, it’s time to take your strategy to the next level, literally, with Elevate Benefits.

Compliance and Peace of Mind

Another enormous benefit of having a fully managed Section 125 wellness plan like Thrive is automatic IRS compliance.

Let’s face it: Section 125 rules are complicated. Overlooking one piece of documentation or disregarding pre-tax deduction guidelines may result in tax liability or plan disqualification.

We handle:

• Drafting & maintaining your official Section 125 plan document
• Making FSA elections within the yearly IRS maximums
• Tracking eligible wellness services
• Handling reporting & audit preparation

It’s risk-free, hassle-free, and ready to roll in as few as 30–45 days.

Which Teams Get the Most from This Approach?

The Thrive Plan, supported by IRS Code Section 125, is flexible enough to scale across industries and team sizes, from 40 employees to 70,000+.

Some industries seeing the greatest success include:

• Logistics
• Retail
• Healthcare
• Food & Beverage
• Education
• Manufacturing

If your company offers full-time roles and wants to reduce benefit costs while increasing value, you’re the perfect fit.

Why Pair FSAs with a Section 125 Wellness Plan?

 

Feature	FSA Alone	FSA + Thrive Plan (Elevate)
Pre-tax payroll savings	Yes	Yes
$0 Copays	No	Yes
Family coverage	Often limited	Included for all
Mental health support	Minimal	Extensive
Employer tax savings	Some	$600+/W2 employee
Compliance support	Manual/DIY	Fully managed
Net pay boost	No	~$100/month

 

Final Thoughts: Step Into the Future of Benefits

As 2025 reveals itself, it’s not adequate to simply provide a Flexible Spending Account and be done with it. Your staff demands more, and your bottom line deserves better.

By combining FSAs with a Section 125 wellness plan such as Thrive, you can:

Enhance financial well-being for employees

Reduce healthcare costs

Lower tax obligations

Provide a wide-ranging wellness package

Assist your employees’ families, not just their individual families

And all without any additional expense to you.

Ready to take your benefits strategy up a notch, the intelligent way?

Let Elevate Benefits guide you in installing a future-proof plan.

Schedule your complimentary consultation today and learn how Section 125 can assist you in doing more with less.