The only way for an employer to provide certain health benefits on a tax-free basis to employees is through a Cafeteria Plan. One of the most basic and popular types is the Premium Only Plan (POP).
The BASE® POP is an IRS-approved change in an employer’s payroll process that deducts the employee portion of the benefit premiums and turning it into non-taxable benefits.
Once the POP is in place, the employees can start to pay for their share of their health premiums on a tax-free basis, allowing an employer to cut payroll taxes and increase the employees’ take-home pay.
Check out the example below.
David runs his own company with 25 employees. Without POP, his average pre-tax contributions are $0. Taking $0 times the number of his employees, 25, giving him a total of $0 for annual pre-tax contributions. Taking David’s total annual pre-tax contributions, $0, times the FICA taxes at 7.65% and his total annual FICA savings (estimate) for the year is $0. But if David were to implement the POP into his company, he could save thousands of dollars in FICA savings. With POP, his average pre-tax contributions are $3,000. Taking $3,000 times the number of his employees, 25, giving him a total of $75,000 for annual pre-tax contributions. Taking David’s total pre-tax contributions, $75,000, times the FICA taxes at 7.65% and his total annual FICA savings (estimate) WITH POP is $5,737.50. By utilizing the BASE® POP to provide the legal documentation and guidance through the small change in payroll process, he has found over $5,000 that is now available for his business.
The BASE® POP benefits both the employer and employee by reducing how much they have to pay in taxes. The employer also can add value and savings to their benefit package, creating a more competitive benefit package. Depending on the employee’s family income, the employee can save 25-50% of their payroll deductions.
For more information on the BASE® Premium Only Plan (POP), contact BASE® at 888.386.9680 or visit www.BASEonline.com.