What is a POP Plan Section 125? Employers who haven’t brushed up on their knowledge on the POP should start doing this as this could help them and their employees realize substantial savings on tax costs.
What Is a Section 125 Premium Only Plan?
The Premium Only Plan or POP is one of the most basic plans offered under Section 125 of the Internal Revenue Code which states that employee contributions intended for specific qualified benefits can be withheld with the use of pre-tax dollars. Under a POP Section 125, employees’ contributions go specifically to health care coverage which includes group life insurance, group dental and vision, group disability, and group life term.
Benefits of a POP Section 125 Plan
There are many advantages to starting a Section 125 plan within an organization but the greatest benefit that can be had is the tax savings. Being able to pay insurance premiums pre-tax translates to substantial savings not only for employees but also for employers too.
For the amount that goes to insurance contribution covered by the POP, the employee can get to save up to 40% of the actual premium cost. The Federal Insurance Contribution Act (FICA) tax, state, local, and other federal taxes will all be reduced once contributions are made under a POP Section 125 plan. With the savings from these taxes, employees can bring home a bigger paycheck every month, or be cushioned from the ever increasing costs of health insurance.
What about the employers? Once an employer sponsors a Section 125 POP for the company’s employees, the employer will be seeing some relevant cuts in tax costs such as the corresponding 7.65% FICA tax and 0.80% FUTA tax. In some states, the employer can also be exempted from unemployment taxes like SUTA or SUI, or any other worker compensation taxes mandated by the state.
Which Employers Can Sponsor a Section 125 POP?
All types of employers can establish a POP within their company: Professional Corporations, Limited Liability Corporations (LLCs), Regular Corporations, Partnerships, Non-Profits, and Sole Proprietorships. Once the plan is set up, employees of these businesses can participate.
In some states, it is required that the employer sponsor a POP Section 125 if the employees’ are paying even just a portion of their health insurance premiums. In addition, employers should automatically implement a Section 125 Premium Only Plan if they are deducting premiums pre-tax.
It doesn’t matter if you have a small, medium-sized, or big business, all can participate in Section 125 plans. With a POP, employers can offer their employees with the right benefits and and still get to achieve substantial savings.
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