Section 125 Premium Only Plan, (POP), saves you money and reduces payroll taxes for your employees. You only need to make one adjustment in your payroll process: employees pay their share of insurance premiums on pre-tax basis instead of on an after-tax basis.
Premium Only Plan lowers your taxable payroll and reduces the taxable income of your employees. Both you and your employees will pay less taxes.
One of the best ways to save taxes is by fulfilling IRS requirements. The Revenue Act of 1978 created the IRS-approved Premium Only Plans. They are governed under Section 125 of the Internal Revenue Code.
A Premium Only Plan means that employees don't have to pay FICA, federal or state taxes where applicable on the money they use to pay their employer-sponsored insurance premiums.
With a section 125 premium only plan:
- The cost of insurance premiums can be covered by tax savings made by employees.
- Increase the take-home pay of employees
- The total employee benefits contributions reduce your taxable payroll. Payroll taxes are lower when there is a lower taxable payroll.
- Employees can save money by allowing them to increase their take-home pay.
- It is possible to increase the insurance premiums paid by your employees without affecting their take-home income.
A Premium Only Plan can be sponsored by any employer. Regular corporations, partnerships and S corporations can all benefit from a Premium Only Plan. Sole proprietors, professional corporations and not-for-profit organizations can all reduce their payroll taxes by setting up a Premium Only Plan.