Section §125 (Mini Cafeteria) Premium Only Plan (POP)

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.

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

Here’s how it works. 
Brochures and video are in the columns.

Lower taxable AGI – Adjusted Gross Income on the employee’s  1040 1040 Lower Income

Same Before and After - Pre and Post Tax
Health Net Brochure

PLUS, the POP will  lower  the employER’s  payroll taxes such as FICAFUTA, * 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 

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 CANotice 2013-54 cuts off employer reimbursement outside of exchange too.

Brochures

Health Net

How it works Info Sheet

Application 1-888-595-2261 tasc online.com/

Blue Cross

POP 125 Brochure

Sterling HSA

Application

Participant Collateral

UHC – PacifiCare

POP Savings Calculators

POP FICA Savings Calculator

Paycheck Manager Calculators   –  Video Instructions @ 2.16 minutes

irs.gov Withholding-Calculator (Annual Maintenance?)

money.msn.com

tasconline.com

 

Instant EmployER Quotes

 

Broker ONLY

MHM Agent Guide

Paychex Video Explanation

POP Health Net
Flex Systems
Blue Cross POP Brochure
Blue Cross POP
UHC POP plan
UHC POP
Sterling HSA
Sterling HSA
Ceridian POP Fica Savings Calculator
Ceridan POP FICA Calculator
Pay Check City
Pay Check City POP Calculator

Links & Reference Material

ACA Requirement to report value of Health Coverage on W 2

Paycheck Manager Calculators

EDD Taxability of Employee Benefits DE 231 EB

 

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

12 comments on “Section 125 – Employee Contribution – Deductible

    • 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

  1. 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)

  2. 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:

      A P.O.P. is a simple, IRS-approved change in your payroll process that allows you to use pre-tax salary dollars to pay your employees’ share of benefit premiums. Any size employer can take advantage of this special provision of Section 125 of the IRS code.

      As a result, both employers and employees profit. Employees reduce their taxable income, which lowers
      their taxes and increases their take-home pay. You cut your payroll taxes by decreasing your total taxable payroll. Everybody wins – and saves.

      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?

    • 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.

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