A POP allows employees to pay for group insurance premiums on a pre-tax basis. Allowable group insurance premiums include those paid for medical insurance, dental insurance, vision care insurance, group life insurance for coverage up to $50,000 per employee, and disability income insurance. Employers are required to have a written Plan Document and Summary Plan Description to describe how the plan operates. In addition, employees can pay for otherwise non-reimbursed health care costs and day care costs by participating in a Heath Care Flexible Spending Account and a Day Care Flexible Spending Account.
Employees can decrease their federal and state income taxes as well as Social Security and Medicare taxes. Savings usually range from 20% to 40% of pre-tax contributions depending upon an employee’s actual tax rates.
Employers Reap Tax Savings Benefits by Offering a Section 125 Cafeteria Plan
Employer tax savings can be as much as 7.65% of employee pre-tax contributions as a result of decreased taxable Social Security and Medicare wages. These savings usually equal or exceed any set-up costs.
In order to establish a Section 125 Cafeteria Plan, a written Plan Document, a Summary Plan Description, and other administration forms are required.
Non-Discrimination testing also must be performed to demonstrate that the Plan does not discriminate in favor of Highly Compensated and Key employees.
Maximize Benefit Offering by Adding an FSA
Section 125 Cafeteria Plan can include not only the ability for employees to pay for group insurance costs on a tax-free basis, but often allow employees to pay for otherwise unreimbursed health care costs and dependent daycare costs by participating in a Healthcare Flexible Spending Account and/or Dependent Daycare Flexible Spending Account.
Employees may decrease their federal and state income taxes, as well as, Social Security and Medicare taxes. Savings usually range from 20% to 40% of pre-tax contributions, depending upon an employee’s actual tax rates.
Employer tax savings can be as much as 7.65% of employee pre-tax contribution as a result of decreased taxable Social Security and Medicare wages. These savings usually equal or exceed any set-up costs.