Just one employee pre-taxing $50 a week in premium ($2,600/year) saves up to $1,040 in payroll taxes. The employer also saves up to 10% or $260 by reducing matching payroll taxes for each employee participating. 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.
How Employees Benefit from a Premium Only Plan.
Employees save 20 to 40% of their pre-tax Section 125 premium deductions. The tax savings are on city, state, and federal income taxes, including Social Security and Medicare taxes on money used to pay for their portion of insurance premiums. Employees take-home pay is increased which helps reduce the cost of providing health coverage for family members.
How Employers Benefit from a Premium Only Plan.
Employers benefit by reducing the matching Social Security and Medicare taxes (7.65%), and sometimes Federal and State unemployment taxes (up to 10%). Depending on the state, employers may also be eligible for worker’s compensation savings (2% to 50%).
Who Can Participate?
Employees of regular corporations, S corporations, limited liability companies (LLCs), partnerships, sole proprietors, professional corporations, and not-for-profits can all reduce payroll taxes by establishing a Section 125 Premium Only Plan. While the Code prohibits a sole proprietor, partner, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation from participating in the Section 125 POP, owners may still benefit from the savings on payroll taxes by sponsoring the plan for their employees.