FICA Reduction · Section 125 · Arizona Employers
Reduce Your FICA Taxes in
Arizona — Save at Both Levels
Arizona's 2.5% flat income tax means a Section 125 plan saves Arizona employers on both federal FICA taxes and state income taxes simultaneously. Phoenix's booming hospitality and service sectors are prime candidates. Zero cost to implement. IRS-compliant. Up and running in one week.
How Section 125 Works for Arizona Employers
Arizona's flat tax structure and booming hospitality corridor make Section 125 straightforward — and highly effective — for AZ businesses of all sizes.
How Section 125 Works in Arizona
A Section 125 Cafeteria Plan lets employees pay for qualified benefits pre-tax, reducing their gross wages. Your FICA obligation is calculated on the lower wage base — saving $620 per employee per year on average. Arizona's 2.5% flat income tax means that same lower wage base also reduces state income tax for both employer and employee.
Which Arizona Industries Benefit Most
The Phoenix metro and Tucson corridors are packed with restaurants, hotels, retail chains, healthcare facilities, and construction companies — all ideal Section 125 candidates. Arizona's large service and hospitality sector is one of the fastest-growing in the Sun Belt. If you have 5+ hourly workers earning $15–$60/hour, you almost certainly qualify.
Arizona Tax Landscape
Arizona's 2.5% flat income tax (enacted post-2023) is simpler than graduated systems — and Section 125 reduces both the federal FICA base and the Arizona state taxable wage base simultaneously. Unlike no-income-tax states, Arizona employers get a genuine two-pronged benefit: federal payroll tax savings plus state income tax reduction with every qualified benefit dollar enrolled.
Arizona Industries That Qualify
Does Your Arizona Business Qualify?
Calculate Your Arizona FICA Savings
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