If you offer health insurance to your employees on a pre-tax basis, then you must offer a “Section 125 Plan” also known as a “Cafeteria Plan”. To take this deduction and reduce the taxes of the company providing the plan, you have some hoops to jump through.
Under Section 125 of the IRS Code, an employer may sponsor a plan for its employees which will allow them to pay for group healthpremiums on a pre-tax basis. A Premium Only Plan (POP) saves the employer on their payroll taxes and affords the employee increased take-home pay. Implementing a Premium Only Plan is fairly easy.
There are three primary items to comply with to be in compliance and to benefit from the tax savings of this type of employee benefit:
Plan Document–this is the document outlining all of the details of the plan
Plan Summary Document–this document goes to each employee and is meant to summarize the plan for the employee’s use.
Reporting/testing–this assures that your plan is in compliance with the ever changing regulations from the IRS.
Some payroll companies, including ConnectPay offer this type of plan management. Follow this link
for more information as well as for a calculator to identify how much tax savings your company can potentially achieve by offering health insurance on a pre-tax basis.
If your current plan manager hasn’t sent you updated Plan or Summary Plan documents, you may not be in compliance. Please contact me NOW to discuss your exposure and how ConnectPay can help you.
ConnectPay Payroll Services
2352 Main Street, Suite 303
Concord, Ma 01742