The POP or Premium Only Plan is offered by the U.S. code Section 125 of Revenue Act, wherein it permits the employees of an organization to pay their share of the premiums concerning the specific health and welfare mileages, added with pre-tax salary deductions. Besides, such Section 125 plan is applicable for the employees and their employers to acquire taxable advantages. It is also called the cafeteria plan, whereby the employers will allocate a certain portion of the eligible employee’s pretax salary for covering the price of benefits that is directed to such applicable employees.
These employers can be LLCs or limited liability companies; regular and professional corporations, partnerships, sole proprietors, and charitable organizations, wherein they can save their money on payroll taxes by initiating a premium only section 125 plan, which significantly changes the approach of estimating the employees’ tax. Herein, all those staff spending at least 1,000 operational hours in their company in the preceding year get spontaneously eligible for the ongoing year Section 125 plans.
Why it is Necessary to Initiate a POP or Section 125 Plan for the Employers?
Formed under the Revenue Act of 1978, the cafeteria or Premium Only Plan is administered and authorized under the Internal Revenue Service (IRS) Code Section 125, wherein it becomes to initiate such plan when the applicable employer intends to decrease the tax burdens of their qualified employees.
Hence, for granting pre-taxable benefits to the employees like group health insurance schemes, or Health Savings Account (HSA), there is nothing more cost-effective technique than introducing the cafeteria plan. This Premium Only Plans are tailored specifically for a certain group of employers, remaining disinterested to adopt an all-inclusive plan like Flexible Spending Account but at the same time intends to provide a partial tax advantage to their employees.
Who Possesses the Right to Launch a Cafeteria Plan?
Herein, the cafeteria or Section 125 plan can be initiated by eligible employers entailing LLCs, partnerships, sole proprietorships, C and S corporations, and other charitable organizations to provide their qualified employees a chance to get taxable mileages on the salary. Nevertheless, the employers need to justify the eligibility criteria for the employees before introducing the cafeteria plan. This is vital, as the Premium Only Plan is not meant for the staff of any company falling under the higher salary bracket.
Who All Can Partake in the Premium Only Plan?
The cafeteria plan can only be introduced to the employees of any eligible organization, amidst their annual open enrolment period falling under a pre-determined date. These pre-announced phases can be marked as important events for such employees like, marriages or the birth of a child. In this context, the eligible employers need to furnish vital data about their qualified employees through an SPD or summary plan description, interpreting the plan mileages, assessment process of obtaining the Section 125 plan-based claims, and the final benefits to be received by the eligible employees.
What Cardinal Mileages are offered By the Section 125 or Cafeteria Plan to the Employers?
Reduce Regulatory Costs and Taxes for Employers
Such cafeteria plans help to immediately mitigate the taxes for the qualified employers and acquire convertible assets considerably for their organization. Herein, these eligible employers can spontaneously retain the 7.65% of taxable income, instead of paying off the FUTA and FICA taxes. This earning can be mentioned as the price of the health insurance premiums to the qualified employees in respect to their salary-based taxes.
Easy To Initiate and Mitigate the Taxes of Employees
The Premium Only Plan is quite easy to be introduced for any qualified company, in which case this plan can be well managed through the payroll management system. Besides, the qualified employees can obtain a reduction in the FICA or Federal Insurance Contributions Act, wherein getting a significant decrease in their local or state taxes tax burdens, when they enlist for the cafeteria plan.
Brings In Augmented Health Coverage for Staff
This unique Section 125 plan can prove as a resourceful retaining method of well-performing staff for the employers, wherein introduction of such plans can boost up their level of morale and satisfaction, helping the employees to perform optimally.
Final Verdict
Acknowledging the prime advantages of the premium only section 125 plan for both the employees and the employers themselves, it would be quite a justified approach for such owners of the company to take the necessary guidance from Davidow Financial & Insurance Services, Inc. in initiating such cafeteria plan.
