Section 125 and FSA Plans
Premium Only Plan
What is the Premium
Only Plan?
The Premium Only Plan
(POP) is a
fringe
benefit
plan, which is authorized under the I.R.S. code Section 125. It is a
tax reduction plan, not an insurance plan. The Premium Only Plan allows
employees to pay for their portion of benefit plan costs on a before
tax basis.
What can we
expect to save with
the POP plan?
On average, the employee
savings
will be
approximately 30% and employer savings 7.65% of the employee
contributions for benefits.
Do we need a lot
of
employees in
order to benefit?
No. The tax savings are
created by
the
employee’s contributions for insurance. As long as the plan does not
favor key executives and owners, there is no minimum number of
employees necessary in order to have a plan.
Which employees
are
eligible for
the plan?
All employees that you,
the
employer declare
eligible. If you allow part time employees to participate, you must
allow all part time employees to participate. The business owner may
also participate if the owner is actually considered an employee by the
corporation.
What are the
benefits of
the
Premium Only Plan?
Generally, employers will
payroll
deduct an
employees portion of the benefit plan costs right out of his or her
paycheck. The benefit cost is deducted AFTER taxes have been taken out
of the employee's paycheck. The Premium Only plan makes it possible for
the benefit costs to come off the top on a BEFORE TAX basis. What this
means is that LESS taxes are taken out of the employee's paycheck. Less
taxes means MORE MONEY in the employee's paycheck.
Does the company
have to
have a
certain insurance carrier?
No. It does not matter
where or
what medical
benefits are available to you. It only matters that the employee is
paying for some portion of their benefits.
Must all
employees
participate?
No. Only those employees
who have
premiums
for which they would like to save on taxes should consider
participation.
When can my plan
begin?
As soon as you decide to
begin
saving for
yourself and your employees.
Flexible Spending
Account
Dependent
Care
& Flexible Spending Account
What is the
Flexible
Spending
Account?
The
Flexible Spending
Account is a
fringe
benefit plan, which is authorized under the I.R.S. code Section 125. It
is a tax reduction plan, not an insurance plan. The Flexible Spending
Account allows employees to pay for their entire portion of out of
pocket medical expenses on a before tax basis.
What is the
Dependent Care
Account?
The Dependent Care Account
is a
fringe
benefit plan, which is authorized under the I.R.S. code Section 125. It
is a tax reduction plan, not an insurance plan. The Dependent Care
Account allows employees to pay for all of their child care expenses on
a before tax basis.
What can we
expect to save
with
these plans?
On average, the employee
savings
will be
approximately 30% and employer savings 7.65% of the employee
contributions for benefits.
Can we implement
only one
plan
without the other?
Yes, the Dependent Care
Account can
be
implemented by itself or in conjunction with POP and FSA. However, a
Flexible Account when installed can include FSA and POP.
Do we need a lot
of
employees in
order to benefit?
No. The tax savings are
created by
employee
contributions. As long as the plan does not favor key executives and
owners, there is no minimum number of employees necessary in order to
have a plan.
What are the
benefits of
implementing either of these plans?
Since you are reducing an
employees
gross
pay check, you then are giving that employee a raise to their income.
This will help retain and hire better quality employees for the
employer. You now are able to offer benefits that were once only
affordable to the larger size corporations.
Is it required
for
employees to
purchase medical coverage in order to participate?
No. If an employee has
coverage
elsewhere,
he/she may either decline to participate or may participate in any
pretax benefits.
If I am enrolled
in my
spouse's
Cafeteria Plan, can I also enroll with my current employer?
Yes. An employee who is
married may
participate in both plans.
When can my plan
begin?
As soon as you decide to
begin
saving for
yourself and your employees.
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