Section §125 (Mini Cafeteria) Premium Only Plan (POP)
Employee Contribution – Non Taxable!
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 * 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.
See below and the brochures in the margins for more information. Email us for any questions. Send us or enter your census for Group Health Insurance Quotes
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.
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
Links & Reference Material
ACA Requirement to report value of Health Coverage on W 2
EDD Taxability of Employee Benefits DE 231 EB
Broker ONLY
Testimonials
Mr. Shorr,
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
Core 125 POP Plan Document Package
Do I need a Section 125 Plan Document for my business?
How well do free ‘fill-in’ plan document templates work?
How much do employees save?
Does a plan bring the employer any tax breaks?
Who can participate?
What is a “cafeteria plan”?
Can I add a health FSA, dependent care FSA, or Health Savings Account?
Do I have to start a Section 125 plan on January 1?
What comes with a comprehensive plan document package?
How do I set up a new Section 125 plan?
When does a plan document need to be updated?
How do I order a Core 125 Plan Document package customized for my benefit plan?
Enter your census or securely send us an excel spreadsheet or a list of employees and get instant proposals for California
Schedule a Skype, Phone or Face to Face meeting
Paychex Video Explanation
Paycheck Manager Calculators – Video Instructions @ 2.16 minutes
irs.gov Withholding-Calculator (Annual Maintenance?)
What’s ADP’s procedure to deduct the employee’s contribution?
I don’t find the answer in google, guess you’ll have to call For automated support by phone, call 1-844-227-5237
Check these pages on their website
https://www.adp.com/resources/articles-and-insights/articles/p/payroll-deductions.aspx
https://www.adp.com/~/media/LearnAtADP/CourseMaterials/PayrollFundamentalsWorkbook-Answers.ashx
Health Net Flex Systems Flyer
https://steveshorr.com/steveshorr/ab_1672_small_group_guaranteed_issue/Health_Net/2020/flexsystems_pop_plan_info_sheet.pdf
TASC Total Administrative Services Corporation 14 Page Flyer
https://steveshorr.com/steveshorr/ab_1672_small_group_guaranteed_issue/Health_Net/2020/hn-pop-marketing-manual.pdf
Is there any kind of non-discrimination testing in a POP ONLY plan?
There are three different non-discrimination tests that must be passed relating to
1) eligibility,
2) actual contributions and benefits, and
3) key employee concentration.
Employers will get an automatic pass of the three non-discrimination tests if they can satisfy one simple requirement. AKA Safe Harbor Rule
If the ratio of non-highly compensated employees participating in the POP plan compared to the ratio of highly compensated participating in the POP plan is 50% or greater, the employer will be treated as passing all of the non-discrimination tests.
A key employee is generally an employee who is:
An officer whose annual pay exceeds $170,000 ($165,000 for 2013); or
An employee who is either of the following:
o A 5 percent (or greater) owner of the business; or
o A 1 percent (or greater) owner whose annual pay is greater than $150,000.
https://www.flexiblebenefit.com/blog/premium-only-plan-pop-safe-harbor-test-eligibility
https://www.sullivan-benefits.com/wp-content/uploads/Nondiscrimination-Tests-for-Cafeteria-Plans-02-04-14.pdf
https://employers.healthreformquotes.com/ab-1083/management-carve-outs/similarly-situated-employees/
We imagine testing to non be relevant, considering Insurance Company participation rules at generally 75% https://employers.healthreformquotes.com/ab-1083/participation-contribution-requirements/
Is this an above or below the line deduction?
Employees ?
Employer?
Above the line deductions are also known as “adjustments to income” and are shown on lines 23-36 of Form 1040.
In the United States tax law, an above-the-line deduction is a deduction that the Internal Revenue Service allows a taxpayer to subtract from his or her gross income in arriving at “adjusted gross income” for the taxable year. These deductions are set forth in Internal Revenue Code Section 62. A taxpayer’s gross income minus his or her above-the-line deductions is equal to the adjusted gross income. Because these deductions are taken before adjusted gross income is calculated, they are designated “above-the-line.” Thus, those deductions allowed in computing “taxable income” under section 63 of the IRC are “below the line deductions” (thus, adjusted gross income represents “the line”). Above-the-line deductions may be more valuable to high income taxpayers than below-the-line deductions. https://en.wikipedia.org/wiki/Above-the-line_deduction
Income allotted to cafeteria plans is taken directly from an employee’s paycheck before taxes are taken out. These pre-tax contributions can save the employee hundreds—possibly even thousands—of dollars in income taxes and Social Security and Medicare taxes over the course of a year. Turbo Tax * PayCheck *
A cafeteria plan, including an FSA and POP provides participants an opportunity to receive qualified benefits on a pre-tax basis. It is a written plan that allows your employees to choose between receiving cash or taxable benefits, instead of certain qualified benefits like health insurance for which the law provides an exclusion from wages. https://www.irs.gov/pub/irs-pdf/p15b.pdf#page=3
What if an employee is off for a couple of weeks, how do we take the deductions so we can pay the monthly premium to the Insurance Company?
The federal Family and Medical Leave Act (FMLA) requires employers to maintain group health benefits for employees who take FMLA leave. However, employers don’t have to pick up the whole tab unless that is their regular practice. Employers who require employees to pay some portion of their health insurance premiums can continue to require employees to pay that amount while they are off work.
During the time when you aren’t getting paid, however, you’ll have to make other arrangements to pay for your benefits.
One option is to require employees to pay their share of the premium at the same time it would ordinarily be due through payroll deductions. In other words, employers may require employees to pay the premium every payday, as yours has.
The FMLA also allows you and your employer to negotiate a different way to pay premiums. For example, you might prefer to make one large payment rather than having to write a check every two weeks. Or, you might ask whether you can prepay your premiums by having a larger amount withheld from your paycheck in the pay periods leading up to your leave. However, your employer must agree to these alternative methods of payment. https://www.nolo.com/legal-encyclopedia/do-i-pay-health-insurance-while-im-fmla-leave.html
An employee gets s paycheck every cycle and deductions are made accordingly. If any employee is on vacation the contribution simply goes into minus, it can be balanced out on the next paycheck (response from my wholesaler)
Are all employers who provide health insurance benefits REQUIRED to have a Sect 125 POP plan?
The health insurance benefit premiums could be fully or partially subsidized by the employer.
No. What makes you think that a POP 125 plan is required for all employers?
A POP plan allows the portion paid by the employee to be tax deductible. Here’s a excerpt of the Blue Cross brochure, cited above:
Are you thinking of a full Section 125 cafeteria plan, that offers a full array of benefits, like adoption assistance, child care assistance, life insurance, health savings accounts, flexible spending?
What exactly is a pop plan?
Thanks for your question. I guess this page wasn’t as understandable as I thought. I’ve rewritten the introduction to make the POP concept easier to comprehend. Let me know if more clarification is needed.