The Basics of POP Plan Section 125
What is a POP Plan Section 125? Employers who haven’t brushed up on their knowledge on the POP should start doing so as this could help them and their employees realize substantial savings on tax costs.
POP Section 125 Defined
The Premium Only Plan or POP is one of the most basic plans offered under Section 125 of the Internal Revenue Code which provides a way for employees to pay for certain qualified benefits on a pre-tax basis. A POP Section 125 Plan in particular, provides for employees’ health care insurance and such coverage includes group life insurance, dental and vision, group disability, and group life term.
How Do Employers and Employees Benefit from a POP Section 125?
No doubt about it, the tax savings is the biggest benefit that can be had with from a Section 125 Plan. Since insurance premiums are paid using pre-tax dollars, both employees and employers get to realize substantial savings on tax costs.
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.
And how does the employer save? 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.
Certain states mandate that a Premium Only Plan should be established if the employees are paying even part of insurance contributions. In addition, employers should automatically implement a Section 125 Premium Only Plan if they are deducting premiums pre-tax.
The best thing about Section 125 plans is that businesses of any size can participate: small, mid-sized, or large corporations. With a POP, employers can provide their employees with the needed benefits and and still get to achieve substantial savings.
While they offer many advantages, Section 125 POP plans remain underused because not too many employers know about it. Visit us to know more about the Premium Only Plan and how you can get your POP Plan documents in a timely, secure, and cost-effective manner.
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