Premium Only Plan

One of the best ways to save taxes.
IRS-sanctioned Premium Only Plans were created by the Revenue Act of 1978 and are governed by Internal Revenue Code Section 125. With a Premium Only Plan:

  • Employees don't pay FICA, federal, or where applicable, state or local taxes on money used to pay for their portion of employer-sponsored insurance premiums or contributions to their Health Savings Account (HSA).
  • Employee's tax savings help defray the cost of insurance premiums.
  • Employees can increase their take home pay.
  • Your taxable payroll is reduced by the total amount of employee contributions for benefits. Lower taxable payroll means lower payroll taxes.
  • You can allow employees to realize an increase in take-home pay and take credit for a terrific new benefit, while still saving money.
  • You can increase your employees' share of insurance premiums without negatively affecting their take-home pay.

Any employer can sponsor a Premium Only Plan.
Regular corporations, partnerships, S corporations, Limited liability companies(LLCs), sole proprietors, professional corporations, and not-for-profits can all save money on payroll taxes by establishing a Premium Only Plan.

Who can participate?
While regulations prohibit a sole proprietor, partner, members of an LLC (in most cases), individuals owning more than 2% of an S corporation, or their spouse and dependents, from participating in the POP, they may still sponsor a plan and benefit from the savings on payroll taxes.

Begin saving taxes immediately.
You can start your Premium Only Plan at any time. Plus, you can have a short plan year for the first year so that future plan years coincide with either your fiscal year or the calendar year.

Employer Tax Savings Example

Your Company - 20 Participants Without POP With POP
Average Pre-Tax Contribution $0 $3,000
Number of Employees x20 x20
Total Annual Pre-Tax Contributions $0 $60,000
FICA (Medicare & Social Security) x 0.0765 x 0.0765
Total Annual FICA Savings (Estimate) $0 $4,590


Employee Tax Savings Example
Employees save $20 to $40 on every $100 they contribute through payroll deduction in just federal income taxes.

Your Employee Without POP With POP
Annual Salary $32,000 $32,000
Annual pre-tax contribution $0 $3,000
Taxable Income $32,000 $29,000
Estimated Taxes -$9,808 -$8,888.50
Annual aftr-tax contribution -$3,000 $0
Net take-home pay $19,192 $20,111.50
Increase in take-home pay   $919.50