The qualified group insurance premiums that may be paid with pre-tax dollars under a POP are listed below. HSA contributions can also be made pre-tax, so the combination of a POP Plan and HSA is very cost effective and beneficial to the employer and employee. (Note that employee HSA contributions in 47 states can be made pre-tax when the employer has a Section 125 or POP document. However, in Alabama, California, and New Jersey, HSA contributions are still state taxable.)
- Disability – if disability premiums are paid pre-tax, benefits received are subject to taxation. Therefore, it is typically preferential to apply taxes to the premiums.
- Employee Group Term Life (up to $ 50,000)
- Hospital Indemnity
Employee Savings Benefits
Employees can often realize 30 – 40% in tax savings because contributions to a POP are exempt from payroll taxes. The actual tax savings are on city, state, and federal income taxes, including Social Security and Medicare taxes on all money employees use to pay for their portion of insurance premiums. Under a Section 125 POP, employees’ take-home pay is increased which helps reduce the high cost of providing health coverage for family members.
Employer Savings Benefits
Employers also realize savings by offering a POP to employees. Typically, employers save approximately 10% in tax savings as a result of lower Social Security, Medicare, Federal and state unemployment and, in some cases, worker’s compensation taxes, depending on the state.
Who Can Participate in a POP Plan
Employees of regular corporations, S corporations, limited liability companies (LLCs), partnerships, sole proprietors, professional corporations, and not-for-profits can all reduce payroll taxes by establishing a Section 125 POP. While the Code prohibits a sole proprietor, partner, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation from participating in the Section 125 POP, owners may still benefit from the savings on payroll taxes by sponsoring the plan for their employees.
Interested in a POP? It’s Easy – Just Complete Our Online Application Today
Employers can complete our POP Application online. It’s simple. We’ve made a step-by-step video tutorial to show you how – watch it here. And if you don’t yet have online access to our platform, you’ll need that to get your POP. You can watch a video to learn how to register for online access here.