Section 125 Premium ONLY Cafeteria Plan (POP) FAQ’s
- Can owners, sole proprietors, etc. participate?
- How do I co-ordinate this with my payroll company?
- How can my employees calculate and change their W-4 Form to get more money now?
- Steve, I have a question I do not see here.
- Does Health Care Reform eliminate the need for a 125 Plan?
Certain self-employed individuals, including sole proprietors, partners in a partnership and more than 2% shareholders of a Subchapter S corporation are considered ineligible to participate in a POP and should not receive the information listed below. In addition, the IRS Code indicates that certain family members (spouse, children, grandchildren and parents) of an individual who owns more than 2% of the stock in an Subchapter S corporation are also considered to have ownership of the stock and therefore are also ineligible to participate. Ceridian Administrators Guide
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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. Of course actual savings will vary depending upon the employee’s tax situation.
Employer Savings Benefits
Employers also realize savings by offering a POP to employees. About 10% tax savings is a good estimate as a result of lower
Social Security, Medicare, Federal and state unemployment and, worker’s compensation taxes, depending on the state. The savings
adds dollars to the employer’s bottom line.
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.
Rules about Mid-year changes – Health Net Employer Manual