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Section 125 Premium Only Plan Tax Savings for You and Your Employees.

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Presentation on theme: "Section 125 Premium Only Plan Tax Savings for You and Your Employees."— Presentation transcript:

1 Section 125 Premium Only Plan Tax Savings for You and Your Employees

2 2 One simple adjustment to your payroll reduces your taxes  The Section 125 Premium Only Plan (POP) saves you and your employees money by reducing pay-roll taxes.  It works by making one simple adjustment in your payroll process – employees’ portion of insurance premiums are taken out of their pay on a pre-tax basis rather than after taxes.  The Premium Only Plan reduces your taxable payroll by reducing your employees’ taxable income. So, both you and your employees pay less taxes.

3 IRS-sanctioned Premium Only Plans were created by the Revenue Act of 1978 and are governed by Internal Revenue Code Section 125

4 4 Example of employee savings John Doe: single, no exemptions Without a POPWith POP Annual salary$ 30,000 Annual pre-tax contributions 1 0 - 2,400 Taxable income$ 30,000$ 27,600 Estimated taxes (30.65%) 2 - 9,195- 8,460 Annual after-tax contributions- 2,4000 Net take-home pay $ 18,405 $ 19,140 Increase in annual take-home pay$ 0$ 735 1 Based on a monthly employee contribution to insurance premiums of $200. 2 Based on an average 20% federal, 7.65% FICA, and 3% state tax rate (varies by state). Note: Social security benefits could be affected.

5 5 Example of employer savings XYZ Company has 10 employees Without a POPWith POP Annual payroll$ 300,000 Annual pre-tax payroll deductions 1 0 - 24,000 Taxable payroll$ 300,000$ 276,000 Annual Social Security tax 2 $ 22,950$ 21,114 Total annual employer Social Security tax savings $ 0$ 1,836 1 Based on employees’ share of insurance premiums, averaging $200 per month per employee.. 2 Based on employer’s matching FICA payroll tax rate of 7.65%.

6 6 How much will you save? Number of employees participating51020 Employee monthly contribution$ 200 Total employee monthly contributions1,0002,0004,000 Employees’ monthly savings (31%)3106201,240 Employees’ annual savings3,7207,44014,880 Employer monthly savings (8%)80160320 Employer annual savings9601,9203,840 Combined employer and employee savings $ 4,680$ 9,360$18,720 Click here to try the EzPOP Savings Worksheet in Excel ®

7 If you require employees to contribute to the cost of their insurance, a Section 125 Premium Only Plan allows you to do so with pre-tax dollars.

8 8 Lower taxes is just one advantage  Reduce taxes. Employees don’t pay FICA, federal, or where applicable, state or local taxes on money used to pay for their portion of employer-sponsored insurance premiums, or contributions to their Health Savings Account (HSA).  Save money. Your taxable payroll is reduced by the total amount of employee contributions for benefits. Lower taxable payroll means lower payroll taxes.

9 9 Lower taxes is just one advantage (cont.)  Lower insurance costs. You can increase your employees’ share of insurance premiums without negatively affecting their take-home pay.  Boost take home pay. You can allow employees to realize an increase in take-home pay and take credit for a terrific new benefit, while still saving money.

10 10 Any employer can sponsor a POP  Regular corporations  Partnerships  S corporations  Limited liability companies (LLCs)  Sole proprietors  Professional corporations  Not-for-profits

11 11 Who can participate?  Regulations prohibit a sole proprietor, partner, members of an LLC (in most cases), individuals owning more than 2% of an S corporation, or their spouse and dependents, from participating in the POP. However, they may still sponsor a plan and benefit from the savings on payroll taxes.  All other eligible employees may participate in the POP.

12 12 POP is easy to implement  The program is convenient because we take care of the paperwork for you.  When you enroll for the service, you will receive a signature-ready, customized POP Plan Implementation Kit.

13 13 The “signature-ready” POP-Kit  Plan Adoption Agreement & Plan Document  Certificate of Resolution  Summary Plan Description & Election Forms  Videos that explain the POP to you, your employees, and your bookkeeper/controller  Educational brochure for employees  Instructions on signing documents and distributing forms to employees  Instructions for maintaining your plan  Simplified explanation of payroll adjustments

14 Click here Click here to view the five-minute “employer” video for you and your bookkeeper / controller

15 15 Begin saving taxes immediately  You can start a Premium Only Plan at any time.  Plus, you can have a short plan year for the first year so that future plan years coincide with either your fiscal year, the calendar year, or the month your health insurance renews.  Typically, your first-year tax savings with a POP will far exceed the cost of plan installation.

16 16 WageWorks keeps you in compliance  Once your plan is established, you will receive complete administrative support services from MHM Resources LLC, a WageWorks company.  Among the nation’s premier flexible benefit firms, MHM Resources is a leading resource for Section 125 Plans.

17 17 Annual compliance service  Prior to each new plan year, you will receive an Annual Compliance Packet. The packet will include re-enrollment materials and “signature-ready” plan documents, forms, and procedures.  Updated documentation, required for keeping your plan in compliance with IRS regulation changes.

18 18 Annual compliance service (cont.)  Free assistance with discrimination testing (upon request).  Quarterly newsletter with compliance tips and reminders.  Continued access to our POP Compliance Support Unit by phone or by e-mail.

19 Educational materials help your employees make wise choices.

20 20 Employee educational video  This five-minute video should be presented to employees. It explains EzPOP and how employees will save.  Click here to view online video (only five minutes). Click here

21 21 Employee educational brochure  The enrollment brochure should be distributed along with your other benefits information.  It’s important that every employee and new hire receives this brochure. Click here to view a PDF of the employee brochure

22 22 Do you already have a POP?  Are you in compliance?  Can you pass the Section 125 Check-up?

23 23 Take the Section 125 Check-up 1.Do you have a written plan document in your files? 2.Have you properly amended your plan to reflect recent IRS changes? 3.Have your employees received a copy of the current Summary Plan Description? 4.Is the total of all benefits for key employees in the plan no more than 25% of the total of all benefits in the plan?

24 24 Take the Section 125 Check-up (cont.) 5.Do you require all election changes to be made only during the open enrollment period each year unless the employee has experienced a valid change in status as outlined in the latest Section 125 regulations? 6.As your new employees become eligible for participation in the plan, do you require that they complete election enrollment forms? 7.Do you have documentation on file to support annual nondiscrimination requirements? 8.Are the premiums for all policies that include a “cash value” or a “return of premium” benefit deducted on an after-tax basis outside of the Section 125 plan?

25 25 Did you pass the Section 125 Check-up?  If you answered “no” to any of the questions, your plan may be out of compliance.  The Internal Revenue Code provides for significant penalties for failure to comply with these requirements.  You may want to consult your tax professional and/or us regarding your non-compliance risk.

26 For questions and support: 877-887-6680 Weekdays, 8 a.m. to 5 p.m. (CST) TAKE CARE ® is a registered trademark of MHM Resources LLC, a WageWorks company. · Copyright 2009 MHM Resources LLC

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