TAX SAVINGS FOR YOU AND YOUR EMPLOYEES
The Section 125 Premium Only Plan (POP) saves you and your employees money by reducing payroll taxes. It works by making one simple adjustment in your payroll process – employees pay their portion of the insurance premiums on a pre-tax basis rather than on an after tax basis.
The Premium Only Plan reduces your taxable payroll by reducing your employees taxable income. So, both you and your employees pay less in taxes.
One of the best ways to save taxes.
IRS-sanctioned Premium Only Plans were created by the Revenue Act of 1978 and are governed by Internal Revenue Code Section 125. With a Premium Only Plan:
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 or contributions to their Health Savings Account (HSA).
- Employee’s tax savings help defray the cost of insurance premiums.
- Employees can increase their take home pay.
- Your taxable payroll is reduced by the total amount of employee contributions for benefits.
- Lower taxable payroll means lower payroll taxes.
- You can allow employees to realize an increase in take-home pay and take credit for a terrific new benefit, while still saving money.
- You can increase your employees’ share of insurance premiums without negatively affecting their take-home pay.
Any employer can sponsor a Premium Only Plan.
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.
Who can participate?
While regulations prohibit a sole proprietor, partner, members of an LLC (in most cases), individuals owning more than 2% of an S corporation, or their spouse and dependents, from participating in the POP, they may still sponsor a plan and benefit from the savings on payroll taxes.
Begin saving taxes immediately.
You can start your 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.
| Your Company - 20 Participants | Without POP | With POP |
|---|---|---|
| Average Pre-Tax Contribution | $0 | $3,000 |
| Number of Employees | x 20 | x 20 |
| Total Annual Pre-Tax Contributions | $0 | $60,000 |
| FICA (Medicare & Social Security) | x 0.0765 | x 0.0765 |
| Total Annual FICA Savings (Estimate) | $0 | $4,590 |
Employee Tax Savings Example
| Your Employee | Without POP | With POP |
|---|---|---|
| Annual Salary | $32,000 | $32,000 |
| Annual pre-tax contribution | 0 | $3,000 |
| Taxable Income | $32,000 | $29,000 |
| Estimated Taxes | -$9,808 | -$8,888.50 |
| Annual after-tax contribution | -$3,000 | $0 |
| Net take-home page | $19,192 | $20,111.50 |
| Increase in take-home page | $919.50 |