A Section 125 Premium Only Plan (POP) can save you and your employees' money by reducing payroll taxes. Employees pay their portion of insurance premiums on a pre tax basis rather than on an after tax basis. A POP plan reduces your taxable payroll by reducing your employees' taxable income. So, both you and your employees pay less in taxes and it doesn't cost you or your employees one dime.
One of the best ways to saves taxes
- Employees don't pay FICA or federal taxes on money used to pay for their portion of employer sponsored insurance premiums.
- Employees' tax savings help defray the cost of insurance premiums.
- Employees can increase their take home pay.
- Your taxable payroll is reduced by the total amount of employee contributions for benefits. Lower taxable payroll means lower payroll taxes.
- You can allow employees to realize an increase in take home pay and take credit for a terrific new benefit, while still saving money.
- You can increase your employees' share of insurance premiums without negatively affecting their take home pay.
Begin saving taxes immediately
You can start a POP plan at anytime. You can have a short plan year for the first year so that future years coincide with either your fiscal year, calendar year or your health plan renewal period.
Tax savings Examples
Example of Employer Savings;
Total annual payroll deductions for all employees = $24,000
Total annual employer savings = $1,836
Example of Employee Savings:
Total annual employee premium contributions = $1,200
($100 per month)
Increase in employee's take home pay = $331.80
($27.65 per month)
Total Cost to Implement a POP plan for the employer or the employee = $0.00
But what if my company has a Section 125 Plan?
Take the following quiz to see if your plan is in compliance. Answer YES or NO :
1. Do you have a written plan document in your files?
2. Have you properly amended your plan to reflect any changes that you made to the plan year, eligibility requirements, benefits, or IRS regulations? “There have been changes in IRS regulations in each of the last six years.”
3. Have your employees received a copy of the current Summary Plan Description?
4. Is the total of all benefits for key employees in the plan no more than 25% of the total of all benefits?
5. Do you have current signed election enrollment forms on file for all eligible employees?
6. Do you require all election changes to be made only during the open enrollment period each year unless the employee has experienced a valid change in status as outlined in the latest Section 125 regulations?
7. When new employees become eligible for participation in the plan, do you require them to complete an election enrollment form?
8. Do you have documentation on file to support annual nondiscrimination requirements?
9. Are premiums for all policies that include a "cash value" or a "return of premium" benefit deducted on an after tax basis outside of the Section 125 Plan?
If you answered “NO” to any of these questions, your plan may be out of compliance. You may want to consult with your tax professional and/or our office regarding your noncompliance risk.
Pricing Information
One time set up fees for a New Plan or a Restatement of an existing Plan typically cost from $300 to $750. Annual Compliance and Service renewal fees typically cost from $250 to $500 per year depending on the administrative service company that you use. You can get some companies to provide this service supposedly for Free but you are required to allow their agents to sell your employees individual policies that they may or may not need.
Through an exclusive agreement, TACT can provide your company a Section 125 Premium Only Plan for "NO COST" TACT has obtained an exclusive agreement with MHM Resources to provide this service to our TACT Members.
To find out more about this new service please call our office and ask for Colleen Pruitt Agency Manager for TACT Insurance Agency Inc. If you need a Full Flexible Spending Account, Colleen can get you our preferred pricing on those plans as well.
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