The Benefits of Starting a Section 125 POP Plan
Many people find it hard to believe that with a Section 125 POP Plan, everyone comes out happy: employers can give their employees the benefits that they need at no added cost, and employees receive a bigger paycheck or get insurance coverage without having to spend more.
But there must be a catch, right? After all, there can't just be something for nothing.
To start with, a Section 125 POP is not "free" health insurance; it's not a giveaway.
However, the federal government has designed this section of the US tax code to help make health benefits for employees more affordable without putting the burden on the employer.
So given this premise, a POP plan is the closest thing to cheap insurance that you can get these days.
Why Are POP Plans "Cheap"? If these Section 125 plans have made health insurance more affordable so that both employers and employees are in a win-win situation, which party gets to shoulder the burden? It is vital to have a basic understanding of just how the POP Plan works to know how it saves significant tax dollars.
Section 125 plans are employee benefit plans provided for by the Internal Revenue Service or IRS code, and the POP Plan is the most basic of these.
Under the Code, specifically Section 125, employee contributions that go toward the payment of health insurance and other qualified benefits are to be deducted on a pre-tax basis.
The tax exemption on the amount paid as insurance premium is therefore the source of tax savings.
Since payroll-related tax transactions affect three parties - the employer, the employee, and the government - it's now easy to see who gets to sacrifice.
Simply put, the government forfeits its share of the pie for the amount set aside as insurance payment to help workers cope with the rising cost of health insurance.
Employees benefit because: • They avoid having to pay FICA, federal, state and local taxes on the contribution amount; • They can see an increase in their take home pay from the tax saved; or • They can use the savings to help shoulder an increase in insurance premiums.
Employers also benefit because: • They can save on payroll-related taxes for the amounts contributed under a Section 125 POP; • They can increase the employees' share of insurance premium without them seeing a significant drop in their take home pay; • They can deduct the costs of implementing a POP as a business expense.
These should be enough reasons for you to start a Section 125 POP Plan in your organization now.
But there must be a catch, right? After all, there can't just be something for nothing.
To start with, a Section 125 POP is not "free" health insurance; it's not a giveaway.
However, the federal government has designed this section of the US tax code to help make health benefits for employees more affordable without putting the burden on the employer.
So given this premise, a POP plan is the closest thing to cheap insurance that you can get these days.
Why Are POP Plans "Cheap"? If these Section 125 plans have made health insurance more affordable so that both employers and employees are in a win-win situation, which party gets to shoulder the burden? It is vital to have a basic understanding of just how the POP Plan works to know how it saves significant tax dollars.
Section 125 plans are employee benefit plans provided for by the Internal Revenue Service or IRS code, and the POP Plan is the most basic of these.
Under the Code, specifically Section 125, employee contributions that go toward the payment of health insurance and other qualified benefits are to be deducted on a pre-tax basis.
The tax exemption on the amount paid as insurance premium is therefore the source of tax savings.
Since payroll-related tax transactions affect three parties - the employer, the employee, and the government - it's now easy to see who gets to sacrifice.
Simply put, the government forfeits its share of the pie for the amount set aside as insurance payment to help workers cope with the rising cost of health insurance.
Employees benefit because: • They avoid having to pay FICA, federal, state and local taxes on the contribution amount; • They can see an increase in their take home pay from the tax saved; or • They can use the savings to help shoulder an increase in insurance premiums.
Employers also benefit because: • They can save on payroll-related taxes for the amounts contributed under a Section 125 POP; • They can increase the employees' share of insurance premium without them seeing a significant drop in their take home pay; • They can deduct the costs of implementing a POP as a business expense.
These should be enough reasons for you to start a Section 125 POP Plan in your organization now.
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