Win-win: A Payroll Department Company, Inc. Sec. 125 Plan benefits employees and can reduce your payroll taxes 10% or more

Section 125 of the tax code is best known for laying out the rules for cafeteria (or flexible benefit) plans that enable employees to use pre-tax earnings to pay for medical expenses, child care and other eligible expenses.

A premium only plan (POP) is a kind of bare-bones cafeteria plan organized so that contributions go solely towards paying premiums for health insurance, vision insurance dental std. Ltd and up to 50k of term life insurance.

The main advantage of using a POP is a reduction in taxes for the employer and the employees. Instead of asking employees to pay for insurance with income that has already been taxed, the employer deducts premiums for the coverage on a pre-tax basis. This reduces your total taxable payroll. Employers can often reduce the cost of FICA and other payroll taxes by 10% or more. Paying with pre-tax dollars also reduces the costs for employees. The employees’ tax savings can exceed 30% on federal, state and FICA taxes. Employees are quick to see the benefits from a POP program. Employees see they are getting a bigger paycheck in addition to their employer sponsored benefits. Workers may even use the savings to buy additional benefits that thy otherwise could not afford. Employers can benefit from an improvement in employees attitude and work performance.

POPs are designed for easy set-up and are simple for small businesses to oversee. So why aren’t more employers offering POPs? In many cases, it’s simple awareness issue. Many businesses are unaware that such a plan exists, or that they might qualify to use a POP. In fact, only 10% of the businesses eligible to use a POP have actually set one up. Misconceptions also play a part. Many employers (even some insurance agents) think that the plans are too complex to learn and administer. Both of these issues have prevented the POP from becoming mainstream.

While set-up and administration is straight forward, there are some specific government rules that must be followed. So be sure to use a qualified vendor. Payroll Department Company provides set-up and administration of POP and full flexible benefit plans. Please give us a call (800) 299-4992 and see how you can profit from setting up a POP.