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 this as this could help them and their employees realize substantial savings on tax costs.
POP Section 125 Defined
The POP or Premium Only Plan is the most basic plan covered under Section 125 of the US tax code which states that employee contributions for specific qualified benefits can be withheld with the use of pre-tax dollars. 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.
Employers and Employee Benefits
No doubt about it, the tax savings is the biggest benefit that can be had with from a Section 125 Plan. Being able to pay insurance premiums pre-tax translates to substantial savings not only for employees but also for employers too.
Tax expenses on the amount contributed for insurance coverage under a Section 125 plan can be eliminated, resulting in savings of as much as 40% of the insurance premium expense. 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. The savings will then increase the employees’ respective paychecks and spending income, or be used to offset the increasing cost of health insurance coverage.
And how does the employer save? Upon sponsoring a Premium Only Plan, he will also be cutting on tax costs, particularly on the matching 7.65% FICA tax and .80% FUTA tax. Depending on where the business is located, the employer may also avoid SUTA or SUI or any state-mandated workers? compensation tax on the amount of the contribution.
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. If insurance premiums are withheld pre-tax, then employers should automatically sponsor a POP as well.
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 offer their employees with the needed benefits and and still get to achieve substantial savings.
Despite their many benefits, Section 125 POP plans remain underutilized because not too many businesses are aware of it. Drop by our site 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.
