Section §125 (Mini Cafeteria) Premium Only Plan (POP)
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- What is Section 125?
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- Who can participate?
- What is a “cafeteria plan”?
- Can I add a health FSA, dependent care FSA, or Health Savings Account?
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If your employee’s (and dependent’s) are contributing to your group health plan, their contribution-deduction from their paycheck, for your companies group medical premiums can be tax deductible with a Premium Only Plan – (POP 125) Mini Cafeteria Plan. Internal Revenue Code (IRC) §125 pdf * html .
The way it works, is that your company signs up for a POP plan, with an authorized administrator – vendor, see the links below and on the sides, it’s often the same Insurance Company that your medical coverage is through, but it doesn’t have to be. The cost of the 125 plan is in the neighborhood of $135/year. The administrator-vendor sends you a kit and you distribute the forms and have each employee enroll. The forms do not have to be filed with the government or even the administrator. You just keep them on file in your company records.
The premiums you as the employer is paying for Medical Coverage are already tax deductible for your company is not reportable as income to the employees under Internal Revenue Code §106. The POP plan, allows the portion of the premium that the employee is paying to also be tax deductible, above the line as it lowers Adjusted Gross Income.
Here’s how it works.
Brochures and video are in the columns.
Lower taxable AGI – Adjusted Gross Income on the employee’s 1040
PLUS, the POP will lower the employER’s payroll taxes such as FICA * FUTA, * Medicare Tax, * Income Tax Withholding US Code 26 C 21, Publication 535Publication 15-A * State Disability Insurance (SDI) and possibly Worker’s Comp. About.com
To start your companies POP Plan, just review the brochures, complete the application and return to us. The administrative process and fees (around $150/year) are nominal. It’s a WIN/WIN for both employER, employee and the dependents.
ACA/Obamacare HCR (Health Care Reform) IRC §125 (f) (3) narrows the definition of qualified benefit to exclude Individual Coverage offered through – Covered CA. Notice 2013-54 cuts off employer reimbursement outside of exchange too.
irs.gov Withholding-Calculator (Annual Maintenance?)
Paychex Video Explanation
EDD California Employers Guide DE 44 128 pages
Links & Reference Material
I’m doing research on using 125 plans for employees who purchase individual insurance, and found your website very helpful, so I thought I would share the following legal analysis of mine, which might be helpful to others:
Mark A. Hall, J.D.
Professor of Law and Public Health
Wake Forest University faculty/profile