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Many people find it hard to believe that with a Section 125 POP Plan, everyone comes out happy: employers are able to offer employees with important benefits at greatly discounted prices, while employees enjoy a higher net income or get valuable insurance without having to spend too much.

But there must be a catch, right? As they say, there’s no such thing as free lunch these days and a POP sounds like one.

First of all, a Section 125 POP is not exactly a “free” plan. It can cost a lot lower than regular insurance, yes, but you do have to spend. What it is however, is a tax-saving scheme created by the federal government to make health insurance more affordable for employees at no extra cost to the employer. So given this premise, a POP plan is the closest thing to cheap insurance that one could get these days.

Why Are POP Plans “Cheap”?

If these Section 125 plans have made health insurance more affordable so that both employers and employees are in a win-win situation, which party gets to shoulder the burden? It is vital to have a basic understanding of just how the POP Plan works to understand how it saves significant tax dollars.

Also called cafeteria plans, Section 125 plans are benefit plans provided for in the IRS Code which make health care and other related benefits more attainable for the average employee. The Premium Only Plan (POP) is only one of these plans. Under the Code, specifically Section 125, employee contributions that go toward the payment of health insurance and other qualified benefits are to be deducted on a pre-tax basis.

The tax exemption on the amount paid as insurance premium is thus the source of tax savings. Now payroll-related tax transactions have three participants: the employer, the employee, and the government. And at this point, we now know who “loses” in a Section 125 plan. In short, the savings that the business and its employees get to make the most of is the government’s supposed share of the tax pie.

Employees benefit because:

1. They don’t need to pay FICA, federal, state, and local taxes on the amount paid as insurance premium; 2. They can see a boost in their take home pay from the tax saved; or 3. They can use the amount saved to offset any increase in insurance contributions.

Employers also benefit because:

1. They get to save on payroll tax expenses for the Plan 125 premium contributions; 2. They can increase the employees’ share of insurance premium without them seeing a major drop in their take home pay; 3. They can deduct the costs of establishing a POP as a business expense.

With all these benefits, there’s no reason not to start a Section 125 POP Plan within your company today.

Visit our site and find out more about the Section 125 benefits you can enjoy! You’ll also discover a reliable and affordable way of getting your POP Plan document ready and in compliance when you need it.