Save Money with the Simplest Form of the 125 Cafeteria Plan
Many know that using pre-tax dollars to pay for health care premiums is a well-known practice for businesses who offer a group health plan, but many are unaware that to take the 125 deduction, employers must set up a compliant Section 125 Premium Only Plan (POP). Establishing this type of plan can provide health care savings for the employer and the employee.
The Premium Only Plan (POP) is an employer-sponsored benefits plan that allows employees to voluntarily deduct a portion of their pay towards tax-free benefits. A compliant POP is a simple payroll change that could help employees save 15-40% while employers save at least 7.65% on each employee-deducted dollar.
The BASE® POP is the simplest form of the 125 Cafeteria Plans. It is an IRS-approved change in an employer’s payroll process, allowing for the employee to pay for their share of their premiums, such as health insurance on a pre-tax basis.
It may not seem like much to have an employee elect to have their premiums paid on a pre-tax basis, but according to the Kaiser Family Foundation Health Benefits Survey 2019, the average annual US employee contribution is $1,242 for single health coverage and $6,015 for family health coverage.
Check out the example below to see how much could be saved with this simple change in payroll.
Assuming a 20% tax rate, a single coverage employee could save roughly $248 while a family coverage employee could save over $1,200 each year. The employer could save a minimum of $95 for single coverage and $460 for family coverage per year, per employee, in taxes. Now, if an employer had 5 single coverage and 20 family coverage, an employer could save around $475 to $9,202.95 a year.
Having a compliant Premium Only Plan is one of the best and simple ways for employers to increase their employees’ satisfaction with their health benefits and save money at the same time.
For more information on the BASE® Premium Only Plan (POP), contact BASE® at 888.386.9680 or visit www.BASEonline.com.
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