If you’re an HR leader or business owner, you’ve probably heard about Section 125 cafeteria plans before. Now, in 2025, there are important IRS rule changes and emerging best practices that could affect how you structure employee benefits.
Thanks to smart innovations like Elevate+, staying compliant and competitive has never been easier. Here’s what you need to know.
What Is a Section 125 Cafeteria Plan?
Under IRS Section 125, employees can put aside part of their paycheck before taxes to cover things like health insurance, medical bills, and dependent care. When that happens, the company’s taxable payroll shrinks too. That means paying less in FICA, FUTA, and other taxes. Everyone wins, staff keep more in their pockets, and the business saves real money.
This kind of setup has worked well for years, especially for companies that plan ahead. But with new IRS updates coming into play, just saving on taxes isn’t enough. It’s become more important than ever to make sure the plan stays in line with the latest compliance rules.
Key 2025 IRS Updates You Can’t Ignore
Here are the important 2025 IRS updates you need to know:
1. New Reporting Requirements
The IRS now requires more detailed documentation, including electronic acknowledgment of benefit elections and clearer receipt tracking for reimbursements. Employers must:
- Confirm eligible expenses with documented substantiation
- Maintain files for reimbursements within strict timeframes
These changes might sound heavy on paperwork but a solution like Elevate+ handles this automatically, eliminating manual errors and audit risk.
2. Tighter Enforcement of Widely Available Language
To qualify under Section 125 or tax code, a cafeteria plan must be “widely available” to eligible employees, as defined by IRS criteria. Recent guidance stresses that:
- You cannot favor certain work classes without justification
- Eligibility must be applied uniformly
If you’ve carved out plans for only executives or part-time workers, it’s time to rethink your eligibility rules. Elevate+ is programmed to reflect these guidelines, ensuring fair access and keeping everything on the right side of the law.
3. No More Reimbursements After Termination
The IRS has clarified that reimbursements tied to Section 125 plans must end when an employee does. That means no retroactive reimbursements after someone’s last day.
Elevate+’s automated system recognizes termination dates and prevents any delays or missteps, helping you close out accounts cleanly and compliantly.
4. Dependent Care Limits
The new rules reinforce longstanding limits on dependent care funds- $5,000 per year, per household. Employers should:
- Advise employees about carryover vs. use-it-or-lose-it rules
- Ensure payroll systems stop deductions when maximums are reached
With Elevate+, these thresholds are tracked in real time, so you and your employees don’t have to watch account balances manually.
Why Elevate+ Is a Smart Fit for 2025 Compliance
2025 brings more rules and more HR headaches. But it also brings smart solutions. Here’s why Elevate+ should be part of your Section 125 strategy:
- Automated election tracking with digital employee confirmations
- Real-time substantiation tools for reimbursements
- Eligibility guardrails that align with IRS class regulations
- Immediate deductions cutoff at employment termination
- Dependent care max tracking, so payroll stops on time
On top of that, Elevate+ builds on Section 125 with a Preventative Care Management Plan (PCMP) and a Specialized Insurance Medical Reimbursement Plan (SIMRP). That means more than compliance, you’re offering care your people will use and appreciate.
Employer Benefits: What You’ll Gain
Here are the benefits that employers get:
1. Tax Savings You Can Count On
By automatically handling pre-tax deductions, you save roughly $600/year per W2, or $60,000 for every 100 employees, with full compliance and no out-of-pocket cost.
2. Reduced Compliance Risk
Audit-ready documentation, termination protocols, and eligibility enforcement help avoid penalties, and give your HR team peace of mind.
3. No Manual Burden
30–45 day setup, then leave it to Elevate+ to manage elections, deductions, and regulatory changes, so you can focus on people, not paper.
4. Meaningful ROI
With options like $0 copay wellness, mental health support, and increased take-home pay, Elevate+ demonstrates real value, while reducing claims costs year over year.
Better Employee Outcomes in 2025
Your team benefits just as much as you do:
- Higher net pay (~$100/month) without higher salaries
- $0 copays for healthcare: telemedicine, RX, urgent care, mental health
- Family-friendly coverage: spouse and dependents included
- EAP, addiction support, Mayo Clinic tools, even couples counseling and health dashboard
- Preventative care support through PCMP, reducing long-term healthcare costs
These aren’t perks, they’re powerful motivators that drive retention, engagement, and productivity.
How to Get Started with Section 125 & Elevate+
- Schedule a 10-minute consultation to outline your current benefit structure
- Let Elevate+ assess your compliance areas, from elections to class eligibility
- Receive your custom proposal, including tax savings projections
- Launch within 30–45 days, with minimal setup and full support
You’ll emerge with a compliant, kept-up-to-date plan and no extra cost or admin headache.
Get Started with Elevate+
2025 may bring more regulations, but it also brings smarter ways to manage benefits. A Section 125 plan powered by Elevate+ lets you preserve tax savings, avoid penalties, and deliver real, family-friendly wellness benefits.
Join the Growing Number of Employees Cutting Costs and Boosting Employee Satisfaction
Book your 10 minute consultation today and let us help you with a smarter way to manage your finances.