Premium Only Plan
Section 125 Premium Only Plans, often referred to as POP Plans, reduce income tax liabilities for employers and employees. This is because IRS Section 125 allows employees to pay their portion of medical insurance premiums and HSA contributions using pretax or tax-free dollars.
Section 125 IRS Code allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Under a Section 125 program, employers may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks. This is a great way to cost effectively enhance benefits packages.
Group Insurance Premiums That Qualify
If offered by the employer, the qualified group insurance premiums that can be paid with pre-tax dollars under a POP are listed below.
Health, Dental, Vision, Disability – if disability premiums are paid pre-tax, benefits received are subject to taxation. Therefore, it is typically preferential to apply taxes to the premiums., Employee Group Term Life (up to $ 50,000), Cancer, Hospital Indemnity, Accident
Employee Savings Benefits
Employees can often realize 30 – 40% in tax savings because contributions to a POP are exempt from payroll taxes. The actual tax savings are on city, state, and federal income taxes, including Social Security and Medicare taxes on all money employees use to pay for their portion of insurance premiums. Under a Section 125 POP, employees take-home pay is increased which helps reduce the high cost of providing health coverage for family members.
Employer Savings Benefits
Employers also realize savings by offering a POP to employees. About 10% tax savings is a good estimate as a result of lower Social Security, Medicare, Federal and state unemployment and, worker’s compensation taxes, depending on the state.
Who Can Participate in a POP Plan
Employees of regular corporations, S corporations, limited liability companies (LLCs), partnerships, sole proprietors, professional corporations, and not-for-profits can all reduce payroll taxes by establishing a Section 125 POP. While the Code prohibits a sole proprietor, partner, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation from participating in the Section 125 POP, owners may still benefit from the savings on payroll taxes by sponsoring the plan for their employees.
You can take advantage of these free benefits as a Welch Insurance Client without changing your present Health Insurance Plan. Give us 6 months to show you the difference. Just click on Broker of Record Change complete the form and return it to Welch Insurance.