How to Set Up a Pre-tax Insurance Cafeteria Plan BenefitWritten by David Turner
Setting up and implementing a pre-tax insurance Section 125 Cafeteria Plan is fairly easy. Essentially, an employer needs to establish what type of plan that will provide solution to their unique plan needs, set up plan with proper documentation, notify & educate employees, and perform non-discrimination testing.A Section 125 Cafeteria Plan is a very broad benefit. In simplest terms one may break down such a plan into three basic levels which include a Premium Only Plan (POP), Flexible Spending Accounts (FSA), and a full-blown Cafeteria Plan that uses "credits or benefit bucks" also referred to as a Consumer Driven Health Care (CDHC) or Defined Contribution (DC) Plan. A Premium Only Plan (POP) allows for employees to pay their portion of group insurance premium on a pre-tax basis and is a good start to saving taxes for you and your employees. Taking your 125 plan to next level includes implementing Flexible Spending Accounts (FSA). Generally, there are two FSA accounts including a Medical FSA (medical / dental / vision) and a Dependent Daycare FSA. These FSA accounts will allow for unreimbursed out-of-pocket expenses to be paid on a pre-tax basis. Examples include dependent daycare, office co-pays, prescription co-pays, eye exams, eyeglasses, contacts, orthodontics, etc… A full-blown Cafeteria Plan / Consumer Driven Health Care (CDHC) plan that utilized "credits or benefit bucks" simply allows employer to provide employees with a limited number of employer sponsored credits, which employee then decides where they'd like to apply these credits within menu of benefit options within company's benefit program. Employees may then supplement with their own dollars to buy additional benefits or increase levels of coverage.
| | Cafeteria Plan Employee Benefit Should be Another Feather in Your Benefit Program's CapWritten by David Turner
IRS code allows for employers to implement a pre-tax Section 125 Cafeteria Plan as an employee benefit. This plan allows for unreimbursed insurance expenses to be paid pre-tax. Examples include insurance premiums, doctors office co-pays, prescription co-pays, eye exams, eye glasses, contact lenses, laser eye surgery, orthodontics, and more...Implementing a Section 125 Cafeteria Plan will strengthen your benefits program, save your company FICA taxes, and save participating employees 17% to 40% in taxes (depending on their income tax bracket). What other benefits can you implement that strengthen your benefits package and you can do so with little or zero out-of-pocket dollars? If your employees are paying any portion of monthly insurance premiums, then to save FICA taxes, implement Premium Only Plan (POP) portion of a pre-tax 125 plan. A POP allows for employees to pay their portion of group insurance premiums on a pre-tax basis and is a good start to saving taxes for you and your employees. You will save FICA taxes while saving your employee 17% to 40% on dollars they're already paying. With a POP there is no real ongoing administration as you'll use payroll to take care of dollar flow's. Discrimination testing is a requirement that will need to be performed at least once at beginning of each plan year to ensure your plan is in compliance. To take your pre-tax 125 plan to next level means implementing Flexible Spending Accounts (FSA) portion of a pre-tax 125 plan. Generally, there are two FSA accounts including a Medical FSA (medical / dental / vision) and a Dependent / Elder Daycare FSA. These FSA accounts will allow for unreimbursed out-of-pocket expenses to be paid on a pre-tax basis. Examples include dependent daycare, office co-pays, prescription co-pays, eye exams, eyeglasses, contacts, orthodontics, and more.
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