Employees save because premiums paid are exempt from federal and state income tax as well as Social Security-Medicare (FICA) withholding.
On average, the total employee tax savings is as much as 30% on premiums paid through the plan. The employer also saves the 7.65% FICA tax on those salary deductions.
Did you know?
There are some misconceptions about the Section 125 plan for small employers. Many center around the divide set by the Affordable Care Act (ACA or “Obamacare”) between Qualified Small Employers with fewer than 50 employees and Applicable Large Employers. Since QSE’s are exempt from the employer mandate to provide group health insurance to employees, are these companies also exempt from participation in and certain rules governing Section 125 plans?
Following are the four most common misunderstandings on the Section 125 plan for small employers with our clarifications in response to each:
Qualified small employers are exempt from the Affordable Care Act (ACA, aka “Obamacare”) employer mandate so we are not eligible to sponsor a Section 125 Premium Only Plan. Not true. Employers of any size – even those with as few as one employee – are eligible to sponsor a Section 125 Premium Only Plan.
Since employers with fewer than 50 employees are exempt from the ACA mandate they are also exempt from the requirement for a written Section 125 plan document. This is a misunderstanding that can end up costing an employer in IRS and ACA fines. Section 125 of the IRS Code requires an employer have a written plan document in place whether the plan covers 1 or 100,000 employees.
Setting up a Section 125 plan for small employers is a lot of paperwork for just one employee. Not at all. It’s as easy as sign, copy, and file. Once you receive the Flex 125 plan document package via email, open the PDF and print it. Sign the plan document as indicated, give a copy of the Summary Plan Description (SPD) document to every eligible employee, and then file the document with other payroll or personnel papers for future reference. There is no requirement to file or forward the plan document to any agency.
The cost of setting up a Section 125 plan for small employers with only a handful of employees is probably unreasonable. Surprise again! If your business offers Colonial Life voluntary benefits through CBIS, the Section 125 plan is free, including annual plan document updates. Without those supplemental benefits, there is a fee for the plan document, so ask our team for pricing.
Employer Tax Savings
According to the Kaiser Family Foundation’s 2017 benefit survey, the average employee pays $5,714 in annual premiums per year for their employer-sponsored health insurance.
.Using that figure, an employer’s 7.65% FICA savings on one employee will be around $430.
Savings like this add up with every additional employee who pays premiums pre-tax.
More than Group Health
Alongside employer-sponsored group health insurance premiums, a Section 125 plan can offer employees the chance to pre-tax premiums for supplemental policies such as group life, dental, vision, and certain types of disability and indemnity coverage.
The company can also add the Health Savings Account module and flex spending arrangements like the Health FSA, Limited Purpose FSA, Dependent Care Assistant Plan (DCAP), and Transit/Parking plan.
With every premium or flex contribution an employee makes using pre-tax salary deductions, the employer eliminates more of its FICA tax liability. Savings keep adding up as the plan grows, building an employee benefits plan rivaling larger employers at a reduced net cost (after tax reductions).
Get Your Flex 125 Today
Bottom line, there is no reason for an employer of any size currently sponsoring group health benefits to not allow employees to pre-tax benefits within a Section 125 POP/Cafeteria plan.
- Employers of every size are eligible for the plan with the requisite written plan document in place.
- The plan document is free when you offer Colonial Life voluntary benefits through CBIS, including annual updates. Without those supplemental benefits, there is a fee, so ask our team for pricing.
- Plus, installing the plan is easy.
- Click the order button below to get started.
For immediate assistance to order, Call (858) 283-7575