At Last – Real Tax Savings for you and your employees.

What is a Section 125 Premium Only Plan?

IRS Section 125 Premium Only Plans (P.O.P.) was introduced by the Revenue Act of 1978. These plans allow employers to reduce payroll taxes by making one simple adjustment to the payroll process. Under the P.O.P. plan, employees may elect to contribute to certain employer-sponsored group benefit plans on a pre-tax basis. This creates savings for both the employee and the employer.

How Employees Benefit from a Premium Only Plan

Employees can use pre-tax income to pay premiums for specific types of group insurance such as:

• Medical
• Dental
• Group Term Life (up to $50,000)
• Vision

Short and Long-term Disability (benefits become taxable)

An employee’s taxable income is reduced by the amount of his / her contribution toward these insurance premiums. The tax savings are on federal income tax, as well as Social Security and Medicare taxes. Employees take-home pay is increased which helps reduce the cost of providing health coverage for themselves and family members.

**How Employers Benefit from a Premium Only Plan

**

Employers benefit by reducing the matching Social Security and Medicare taxes. In addition, P.O.P. fees are tax deductible as a business expense.

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 P.O.P. Plan. Certain individuals, however, are prohibited from participating. These include sole proprietors, partners within a partnership, or 2% or more shareholders of an S Corporation. (IRS code states that family members including spouse, children, grandchildren and parents of an individual who owns stock in an S-corporation are also considered to have ownership of the stock, and therefore, are also ineligible to participate.)

Even though these individuals are ineligible for P.O.P. their employees can participate and owners may still benefit from the savings on payroll taxes by sponsoring the plan for their employees.

Note: In recognition of the fact that the implementation, interpretation and administration of the P.O.P. Plan are beyond the control of John C. Jones and Associates, Inc, our firm makes no representations that the intended tax or other benefits will result if the P.O.P. Plan is not implemented, interpreted and administered as required by IRS Section 125. The information herein does not provide legal or tax advice. You should consult with your own legal and tax advisors if you need such advice.