Section 125 Premium Only Plan, or a POP Plan, is an essential part of any employer group health insurance and ancillary benefit program. Section 125 is the part of the IRS Code that allows employees to purchase health insurance and other ancillary benefits tax free. A Section 125 Plan legally allows your employees to pay their portion of medical insurance premium and other ancillary benefits premiums using pretax or tax-free dollars.
Core Documents provides employers with everything they need to establish an IRS and DOL compliant Section 125 POP Plan for only $149.00.
How Employees Benefit from a Section 125 Premium Only Plan.Employees avoid paying any income tax on premiums they pay through a Section 125 Plan. The premium is actually deducted before the taxes are calculated. This means an employee doesn’t have to make $300 in order to pay a $200 insurance premium because the tax liability is immediately eliminated. The Government allows this to help make insurance more affordable. Employees save 22.65% to 40% of their pre-tax Section 125 premium deductions in just federal income taxes alone. 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.
How Employers Benefit from a Section 125 Premium Only Plan. A Section 125 Premium Only Plan is unique in that it is one of the few employee benefit plans that will continually pay dividends back to the employer. A Section 125 Plan does this by eliminating the 7.65% in employer matching Social Security and Medicare taxes, and sometimes Federal and State unemployment taxes. Depending on the state, employers may also be eligible for worker’s compensation savings. See an example of tax savings at theCafeteria Plan Savings page. Bottom line, employers who establish Section 125 Plans actually recoup the small $149 one-time fee quickly and then continue to realize tax savings year after year after year.
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