Flexible Benefit Plans
The Section 125 Premium Only Plan (POP) saves employers and 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.
Benefits
IRS-sanctioned Premium Only Plans were created by the Revenue Act of 1978 and are governed by Internal Revenue Code Section 125. With a POP:
- Employees don’t pay FICA, federal, or where applicable, state or local taxes on money used to pay for their portion of employer-sponsored insurance premiums.
- Employee’s tax savings help defray the cost of insurance premiums and they realize an increase in pay.
- Employers taxable payroll is reduced by the total amount of employee contributions for benefits. Lower taxable payroll means lower payroll taxes.
Eligibility
Regular corporations, partnerships, S corporations, limited liability companies (LLCs), sole proprietors, professional corporations, and not-for-profits can all save money on payroll taxes by establishing a Premium Only Plan. While regulations prohibit 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 POP, they may still sponsor a plan and benefit from the savings on payroll taxes.
Getting Started
You can start a Premium Only Plan at any time. Plus, you can have a short plan year for the first year so that future plan years coincide with either your fiscal year or the calendar year.
How it Works
Employers receive a self-administration and installation kit with document templates, step-by-step instructions, and informational videos for the employer and employees. Updates are provided annually with compliance monitoring.
Cost
$250 Start-up, $250 for annual compliance
Flexible Spending Account and Full Flex Plans
Available at a discount, quoted on a case by case basis.
