Premium Only Plan (Section 125)
The Premium Only Plan (Section 125) can help you in a number of areas. It provides employers with a way of reducing payroll taxes and helps employees with the cost of health insurance and various medical expenses, as well as the cost involved in caring for children and other dependents.
An IRS Section 125 Premium Only Plan is also often referred to as a POP Plan. This Premium Only Plan (Section 125) is of benefit to both employers and employees, in that it helps both to lower their lower income tax liabilities. In a nutshell, it makes it possible for employees to use tax-free or pre-tax income to pay medical insurance premiums. This, in turn, helps reduce payroll taxes. The Premium Only Plan (Section 125) is sometimes also known as a cafeteria plan, because it allows people to make a choice of benefits, as if selecting from a menu.
Employees who elect to make special salary deductions as part of an IRS Section 125 Premium Only Plan can make savings on their federal, state, and city income taxes. The savings in federal taxes alone can amount to as much as 40% of the pre-tax or tax-free income. With taxable income reduced, take home pay increases, putting more dollars in your pocket for you and your family to enjoy.
As well as helping employees, the IRS Section 125 Premium Only Plan also has great advantages for employers. With a Premium Only Plan (Section 125), an employer can benefit from reductions in Social Security in Medicare taxes. There may be savings on federal unemployment taxes in a number of states.
There are many people who can participate in a Premium Only Plan (Section 125). If you are employed by a corporation, an S corporation, a partnership, a not-for-profit organization, a limited liability company, a sole proprietorship, or a professional corporation, you can benefit from an IRS Section 125 Premium Only Plan. Even when a sole proprietor, a member of a limited liability company, a partner, or a person who owns more than 2% of an S corporation is not eligible to participate actively in a Premium Only Plan (Section 125), the owners of such businesses are still allowed to sponsor the IRS Section 125 Premium Only Plan for their employees, thus earning valuable savings on payroll taxes.
People who already have an IRS Section 125 Premium Only Plan in place can make the most of the plan and its pre-tax benefits. In fact, if you want as many tax-free dollars as possible in your pocket, it would be to your advantage to update your Premium Only Plan (Section 125). If the plan is five years old or more, you should make it a priority to do this, so you can be sure the provisions of your IRS Section 125 Premium Only Plan are keeping pace with any changes that have taken place in the IRS Code in the past few years.
The pre-tax contributions that employees can make to group insurance programs, as part of a Premium Only Plan (Section 125), ensure they will be able to take home a bigger paycheck on a permanent basis. This is because you will reduce your taxable income when you participate in an IRS Section 125 Premium Only Plan. As well as adding tax-free dollars to your income, a Premium Only Plan (Section 125) also makes a difference to payroll taxes, a consideration that employers should find well worth considering.
There are a number of eligible programs associated with an IRS Section 125 Premium Only Plan. As well as health programs, they include vision and dental insurance, as well as disability insurance. Group term life insurance, up to a total of $50,000 per policy, is also among the insurance programs to which an employee can contribute through a Premium Only Plan (Section 125) and through which you can gain pre-tax benefits. The tax-free savings gained through an IRS Section 125 Premium Only Plan, including savings on federal, state, and social security taxes, can make your life easier by providing you and your family with more ready cash. Employers also benefit from a Premium Only Plan (Section 125) because they save money on payroll taxes.
In association with a Premium Only Plan (Section 125), you may often hear about flexible spending accounts. With an IRS Section 125 Premium Only Plan, a flexible spending account goes a step further than the pre-tax system that the Premium Only Plan (Section 125) provides for its participants. Through a flexible spending account, you are provided, as an employee, with a tax-free way of paying for your medical expenses, as well as any dependent care that your insurance does not cover. The expenses under which you can benefit from an IRS Section 125 Premium Only Plan through a flexible spending account include dental checks, doctor co-payments, contact lenses, and prescription drugs.
As an employee participating in a Premium Only Plan (Section 125), you decide, under a flexible spending account, to set a certain amount of money aside annually. This amount is then deducted during the year as part of your tax-free benefits through the IRS Section 125 Premium Only Plan. As part of minimizing your liability, you are able to put a limit on the deductions for medical expenses. This is advisable, as otherwise, in the event for instance of major surgery, you could exceed your pre-tax contribution and have to pay the amount that your deductions did not cover. The flexible spending account also carries a mandatory limit of $5,000 in connection with childcare.
The tax benefits of participating in an IRS Section 125 Premium Only Plan are many and varied. For employers, there are specific reductions in payroll taxes when they become involved in a Premium Only Plan (Section 125). As well as reducing federal and state unemployment taxes, they can also benefit from a lessening of Social Security and Medicare taxes. In some states, they will also be entitled to workers compensation savings that can also make a significant difference to the amount they have to pay in payroll taxes.
As well as saving up to 40% of their pre-tax deductions, employees who take part in an IRS Section 125 Premium Only Plan can receive other benefits. They can take advantage of the opportunity to receive a health care and dependent care spending account. Through a Premium Only Plan (Section 125), employees can also adopt a plan document that enables them to make tax-free contributions to their coverage. Therefore, thanks to the various tax-free benefits involved, both employers and employees benefit from their participation in a Premium Only Plan (Section 125). Employers save on payroll taxes, while employees receive more tax-free income, and thus have more money to take home. Employers also save on payroll taxes, and can, in many cases, enjoy the benefits of the extra productivity resulting from the satisfaction of their employees with their increased take-home pay.
Establishing and administering an IRS Section 125 Premium Only Plan is not difficult or expensive, and in view of the savings that result for payroll taxes for employers and the increased take-home income for employees, it is well worth establishing. As well as receiving the benefits of reductions to payroll taxes when they participate in a Premium Only Plan (Section 125), employers have the advantage of knowing there is little cost associated with administering the plan. Usually, any cost involved with getting an IRS Section 125 Premium Only Plan underway will be recovered in the first year of the plan's operation, through the tax savings it brings about. Once the Premium Only Plan (Section 125) is underway, these savings can start immediately.
When you implement an IRS Section 125 Premium Only Plan, you will also find there is no need to change your existing benefits program. With the help of a competent administrator, employers will find it easy to put in place the plan that will help them reduce their payroll taxes and provide their employees with more tax-free income. When an employee makes contributions on a pre-tax basis, there is no need to pay federal, state, or social security taxes on that money. In turn, the employer is exempt from paying the employment tax that would usually apply to that amount. Both employer and employee, therefore, benefit from an IRS Section 125 Premium Only Plan.
A comprehensive Premium Only Plan (Section 125) has three components. The main one involves group insurance premiums, meaning that through an IRS Section 125 Premium Only Plan, employees can take advantage of pre-tax benefits. This is done by having the total amount of their health insurance contributions deducted from their pay before tax is paid, making that amount tax free. Employees who do this, therefore, have more money to take home in their pay.
Through a Premium Only Plan (Section 125), employees can also elect to take out a healthcare reimbursement account. Employees who use this account can nominate a set amount to be deducted regularly on a pre-tax basis from their pay. Such money can then be used for expenses such as medical, dental, or vision, which may occur and would otherwise not have been covered by insurance.
An IRS Section 125 Premium Only Plan also offers a dependent care reimbursement account. This enables employees to organize deductions from their pay to set up a pre-tax fund to pay for childcare or the care of dependents. A maximum of $5,000 can be paid into such accounts.
This component of a Premium Only Plan (Section 125) could make all the difference to your peace of mind, especially with rises in the costs of health care and health insurance. There are various health services that may be needed, but may not be available or covered by many health insurance plans. Some, for example, do not cover such services as eyewear or eye examinations. If this is the case, you could be up for a lot of expense, if you suddenly have to have a costly eye examination and buy glasses.
The system involved in an IRS Section 125 Premium Only Plan enables you to put money aside on a pre-tax basis to cover such contingencies. All you need to do, under a Premium Only Plan (Section 125), is decide on a certain amount of money that you want to have deducted from each pay. This tax-free money helps build up a fund that you can use for medical, vision, or dental expenses when they occur. In this way, through a Premium Only Plan (Section 125), you can relax, knowing you are covered for such medical emergencies.
Like the healthcare reimbursement account, the dependent care reimbursement account is a component of the Premium Only Plan (Section 125) that makes it possible to put money aside for specific future expenses. If you have a dependent who needs care while you are at work, or a child for whom you need to pay childcare costs, the IRS Section 125 Premium Only Plan can help through the dependent care reimbursement account. Like the healthcare account, you can decide on an annual basis how much pre-tax money you want to set aside to fund the account. For childcare purposes, up to $5,000 a year can be set aside through the Premium Only Plan (Section 125).
As well as having a fund established, you also have the satisfaction of knowing that you are receiving, in effect, discounted services when you use the money from the fund. Remembering that the money in the fund was deducted on a tax-free basis, you could consider that you are getting a discount of anything from 25% to 50%, depending on your tax bracket. In this way, the IRS Section 125 Premium Only Plan has the ability to make a difference to your life in more ways than one.