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Cafeteria Plan/ Section 125 Plan
BENEFIT ADMINISTRATION OUTSOURCING
The administration of benefit plans for any employer can be a challenge
Through provisions of Section 125 of the Internal Revenue Code, your
employees can elect to pay their portion of group health premiums on a
pre-tax basis.
This option reduces your employees' gross wages by the amount they
contribute to the benefit plan on a pre-tax basis. And because these
dollars are considered to be employer expenses, your company will save
on payroll taxes and Workers' Compensation premiums.
And because your employees reduce their taxable income with those
pre-tax contributions, they will pay lower federal and state income and
social security taxes, thus increasing their take-home pay!
So, with the Premium Only Plan, everyone saves!
[Please note that if disability or life insurance premiums for coverage
over $50,000 of life insurance are paid with pre-tax dollars, any
benefits paid out will be taxable to the recipient.
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Employee
Benefits using the Premium Only Plan (POP) are:
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Reduced
FICA, federal and state taxes
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Increased
take-home pay
Assume
you are married, earn $28,000 a year and pay
$1,800 annually for your health insurance
coverage. With the SBP, your take-home pay will
increase by $486 as illustrated
below. |
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Without POP |
With POP |
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Your
Income |
$28,000 |
$28,000 |
|
Less
Health Premiums |
$0 |
$1,800 |
|
Taxable
Income |
$28,000 |
$26,200 |
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Estimated
Federal, State & Social Security taxes
(27%) |
$7,560 |
$7,074 |
|
Income
after taxes |
$20,440 |
$19,126 |
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Less
Health Premiums |
$1,800 |
$0 |
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Remaining
income after taxes and health
premiums |
$18,640 |
$19,126 |
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Increase
in take-home pay |
$0 |
$486* |
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Employee
Benefits using the Premium Only Plan (POP) are:
-
Reduced
Payroll-related taxes
-
Reduced Worker's Compensation costs
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Minimal cost to implement
Employer savings
illustrated below |
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Without POP |
With POP |
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Typical Annual
Payroll |
$200,000 |
$200,000 |
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Less
Health Premiums contribute for benefits |
$0 |
$8,500 |
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Taxable
Income |
$200,000 |
$191,500 |
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Estimated
Federal, State & Social Security taxes
(12%) |
$24,000 |
$22,980 |
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Employer
Savings... |
$0 |
$1,020* |
* Note- this illustration approximates the
amount of employer savings. The actual amount will vary depending
on your employee's benefit contributions and worker's compensation
rates.
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