Section 125 TAX SAVINGS
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.
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.
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Without POP
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With POP
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Taxable
Income
Less Taxes
Net Pay
Less Group
Medical
Other
Benefits
Spendable
Income
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$1500.00
$337.00
$1163.00
$175.00
$50.00
$938.00
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Gross Income
Less Group
Medical
Other
Benefits
New Taxable
Income
Less Taxes
New
Spendable Income
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$1500.00
$175.00
$50.00
$1275.00
$287.00
$988.00
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Per Pay Tax Savings
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$0.00
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Per Pay Tax Savings
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$50.00
|
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Annual Tax Savings
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$0.00
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Annual Tax Savings
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$600.00
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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.
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