What Are the Benefits of a Section 125 Plan?
If you’re a business owner, you likely wear lots of hats and are more involved in the nuts and bolts of your business than you are making sure your payroll and accounting are in compliance. It is perhaps due to the added burden of complying with IRS regulations that you have opted not to implement a Section 125 plan within your organization.
But what you may not realize is that the advantages of sponsoring a Section 125 Plan may far outweigh the perceived “hassle” of setting up one.
Tax Savings. A Section 125 plan, also called a cafeteria plan, lets you offer your employees the ability to pay for benefits on a pre-tax basis. For example, if your cafeteria plan provides health insurance, the employee?s premium is deducted from his or her taxable income. This deduction, in turn, reduces the amounts of Federal withholding, FICA tax, and Medicare tax that the employee has to pay. But the savings doesn’t end there. You as the sponsoring employer also gets to realize tax savings for the matching company share of FICA and Medicare taxes, as well as less FUTA and state unemployment taxes. Depending on the state where you’re located, this might also translate into lower State taxes, too.
Boost in Employee Morale. With the decrease in taxable income, the employee essentially gets a pay raise at practically no cost to the employer. What happens is that the employee still spends for the insurance premium but under a Section 125 plan, the contributions are deducted tax-free and this translates to a considerable discount in the premium price, hence the “raise”. The cafeteria plan allows the employer to offer to employees, on a pre-tax basis, benefits that the employer could not otherwise afford; this makes those coverages less expensive for your workers.
A cafeteria plan offers a vast array of benefits. For example, with a cafeteria plan, you can offer employees the ability to pay their premiums pre-tax through the plan for coverage of health, dental, life and other ancillary coverages. The best thing about it is that the employees can see that the company is seriously concerned about their welfare, simply by making the effort to sponsor the plan .
Employment Incentive. In this economy all employers are looking for creative ways to stretch their resources and top talent is hard to find. To get the best and most qualified employees, you need to be competitive with other employers in your field. While most companies will still let the employees pay for even just a part of their insurance premium, by sponsoring a Section 125 Plan, the expense is greatly reduced and this is well appreciated by the employees .
Visit our site and know more about Section 125 benefits you can enjoy! You’ll find out just how much tax savings you can get as well as discover a secure and cost-effective way of getting your POP Plan document ready and updated all the time.
