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When Should I Start a Section 125 Premium Only Plan for my Company?

June 4th, 2012 • 0 Comments • Posted by admin

For most, offering a Section 125 Premium Only Plan (POP) is a no brainer.  There really is no better way for an employer and individual employees to see an immediate cost savings through benefit premiums being deducted pre-tax.  With that being said, a business owner must ask themselves a few simple questions to make sure if it is the right decision for them.

1. Do your employees contribute toward the cost of the group health, dental or vision benefits offered to them as part of the benefits package? Yes or No

If Yes, you and your employees may benefit from offering the POP.  You can save on payroll taxes, such as FICA, and the employees can save on federal income tax, FICA tax, and in some cases state income taxes.

If No, you probably don’t need one now, but if at some point in the future you do decide to require that employees contribute, then you will want to consider putting one in place.

2. Is your business an LLC, Partnership, Sole Proprietorship, or S Corp? Yes or No

If Yes, you may want to introduce a POP for your employees, however, the following individuals will not be permitted to participate:

  • Members of an LLC or LLP
  • Partners in a Partnership
  • Owner of a Sole Proprietorship
  • Any Shareholder of an S Corp who owns at least 2% of corporate stock as well as spouse of an employee, even if spouse is not a shareholder

If No, all employees may participate in the POP, but keep in mind if the entity is a C Corp the shareholder must be an employee.

So if a Section 125 Premium Only Plan is right for your company, the next thing you must ask yourself is, when then should I put it in place?  Contrary to popular belief that you have to start at your benefits renewal, you can really start at any time and can be setup quite easily through TaxFreePremiums.com.

For those that also want to offer the ability to allow employees to deduct money for out-of-pocket medical expenses or dependent day care, then you can even do what is referred to as a “short” plan year.  For example, your plan renews January 1st, but it is currently June and you’d like to take advantage of the tax savings right away.  You would then do the short plan year from June through the end of December and then from here on out it would run from January 1st through December 31st to make sure and match up with deductibles or to help ease administration throughout the year.

In summary, sponsoring a Section 125 Premium Only Plan is a simple and easy way to take advantage of some immediate cost savings, with very to little administration and expense.


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