Checking Out the POP And We Aren't Talking About Soda
When employers are looking for a way to save money without sacrificing the quality of the health benefits they provide to their employees, one way is with a 125 Cafeteria Plan that offers significant tax savings for both employer and employees.
The BASE® Premium Only Plan (POP), is one of four options under a 125 Cafeteria Plan. This plan allows for an IRS-approved change in an employer’s payroll process to deduct the employee portion of the employer-sponsored benefit premiums on a pre-tax basis.
The Premium Only Plan can save the employer and employees hundreds of dollars a year and the process to get started is so simple. Because taxes can take a big chunk out of the business’ revenue and the employees’ earnings, the POP is a legal way to enjoy the tax savings and pay for insurance premiums.
How does the Premium Only Plan work? When the employee elects to participate, their portion of insurance premiums are deducted from their salary on a pre-tax basis, helping the employee pay less taxes, resulting in higher take-home pay. Check out the example below.
Employee Benefits | WithOUT BASE® POP | With BASE® POP |
Employee Income | $55,000 | $55,000 |
Less Health Premiums | $0.00 | $3,000 |
Taxable Income | $55,000 | $52,000 |
Estimated Federal, State, & Social Security Taxes (27%) | $14,850 | $14,040 |
Income After Taxes | $40,150 | $37,960 |
Less Health Premiums | $3,000 | $0.00 |
Remaining Income After Taxes & Health Premiums | $37,150 | $37,960 |
Increase in Take-Home Pay | $0.00 | $810.00 |
This is an example. The actual savings amount may vary depending on the employee’s specific tax requirements. | ||
The POP is an easy and inexpensive benefit to set up that creates a more competitive benefit package that generates tax savings for employers. The amount an employer can save can be significant. For example, FICA tax rate is 7.65%. If an employee puts $100 toward their Cafeteria Plan that can save the employer $7.65. Although, it seems like a small number, it adds up quickly when more than one employee elects into the POP.
The example above shows just how much an employee can save by paying for their share of the employer-sponsored benefit premiums on a pre-tax basis. Depending on the employee’s family income, paying for health insurance in this way can save anywhere from 25-40% in taxes for every dollar they elect, helping to defray the cost of insurance premiums.
For employers looking to enhance their health benefits package with a quick payroll adjustment that adds value and savings, contact BASE® at 888.386.9680 or visit www.BASEonline.com.
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