What is a POP Plan?
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"Section 125 of the Internal Revenue Code allows tax savings for employers and employees. These Section 125 plans, often called 'Cafeteria' or 'POP' plans are one of the few employee benefits that offer advantages to both employers and employees."
About the $79 POP Plan
The Premium Only Plan (POP) is the most common of all cafeteria plans. It’s most often used in conjunction with the other cafeteria plan types (e.g., Flexible Spending Account). In a POP, the employees’ portion of group health and other premiums is payroll deducted on a pre-tax basis, resulting in lower income taxes.
Group insurance premiums that you can deduct pre-tax include:
Group Health Insurance
Dental / Vision Insurance
Accident Insurance / Supplemental Insurance
Disability Insurance*
Group Term Life Insurance**
*Disability Insurance benefits are taxable when premiums are placed pre-tax.
**Term life limit: up to $50,000 pre-tax on employee only; spouse/dependent life not available.
The Premium Only Plan (POP) is the most common of all cafeteria plans. It’s most often used in conjunction with the other cafeteria plan types (e.g., Flexible Spending Account). In a POP, the employees’ portion of group health and other premiums is payroll deducted on a pre-tax basis, resulting in lower income taxes.
Group insurance premiums that you can deduct pre-tax include:
Group Health Insurance
Dental / Vision Insurance
Accident Insurance / Supplemental Insurance
Disability Insurance*
Group Term Life Insurance**
*Disability Insurance benefits are taxable when premiums are placed pre-tax.
**Term life limit: up to $50,000 pre-tax on employee only; spouse/dependent life not available.
How Does it Work?
There’s no need to sign up and there’s no paperwork to fill out. The eligible group insurance premiums will be automatically deducted pre-tax unless you choose not to participate. If you don’t want to participate in this benefit, you’ll need to complete an Employee Election Form which is included in your Premium Only Plan document.
There’s no need to sign up and there’s no paperwork to fill out. The eligible group insurance premiums will be automatically deducted pre-tax unless you choose not to participate. If you don’t want to participate in this benefit, you’ll need to complete an Employee Election Form which is included in your Premium Only Plan document.
Advantages for the Employer:
Financial Benefits.
The employer saves money on the amount of matching FICA tax the employee has withheld from their wages on a pre-tax basis which is estimated at 7.65%. With the lower taxable income for the employee, there can also be a savings on an employers workers compensation insurance since it will cover a lower payroll amount with the premium only cafeteria plan.
Simple setup and low cost
Employers are able to add an additional benefit to their group insurance programs with one simple plan document. Premium Only Plans are an effective way for employers to allow employees to pay for employer provided group health insurance by paying their portion using pre-tax dollars. This creates a more competitive benefit program, while generating FICA tax savings for the employer.
Financial Benefits.
The employer saves money on the amount of matching FICA tax the employee has withheld from their wages on a pre-tax basis which is estimated at 7.65%. With the lower taxable income for the employee, there can also be a savings on an employers workers compensation insurance since it will cover a lower payroll amount with the premium only cafeteria plan.
Simple setup and low cost
Employers are able to add an additional benefit to their group insurance programs with one simple plan document. Premium Only Plans are an effective way for employers to allow employees to pay for employer provided group health insurance by paying their portion using pre-tax dollars. This creates a more competitive benefit program, while generating FICA tax savings for the employer.
Advantages for Employees:
Higher Take-Home Pay.
Employees that are paying their group insurance premiums pre-tax, will realize a higher net take home pay as illustrated in the example above. Employees save Federal, State and FICA taxes.
Make Health Premiums a little more affordable
With participating employees paying for their health insurance premiums on a pre-tax basis, they effectively can lower the amount they are paying in health premiums by 20% to 39% depending on their overall tax bracket. By paying for their group insurance premiums pre-tax, this tax savings helps defray the overall cost of their insurance premiums.
Higher Take-Home Pay.
Employees that are paying their group insurance premiums pre-tax, will realize a higher net take home pay as illustrated in the example above. Employees save Federal, State and FICA taxes.
Make Health Premiums a little more affordable
With participating employees paying for their health insurance premiums on a pre-tax basis, they effectively can lower the amount they are paying in health premiums by 20% to 39% depending on their overall tax bracket. By paying for their group insurance premiums pre-tax, this tax savings helps defray the overall cost of their insurance premiums.
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FAQ:
- What does Cafeteria plan cover?
- Are Cafeteria plans exempt from FICA?
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