Section 125 Info
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Section 125 - Tax Savings
What is a Premium Only Plan? (POP)
Under the Internal Revenue code Section 125 employees are allowed to pretax their insurance
amount for medical, dental, and life insurance. Employer Tax Savings-Employer receives a 7.65%
FICA match.
Why would I want to participate in a POP Plan?
Employee Tax Savings - more take home pay! By deducting these premiums on a pretax basis, the
employee's net income will be greater because their overall tax liability will be less.
Estimated Employee Tax Savings:
Employee Total Annual Premium $_______________(X) 30.0% = $_______________
(This is the approximate employee Pretax Savings!)
How does a POP work?
Every pay period, money is deducted (before taxes are calculated) from your paycheck when you
complete the enrollment form.
Example of Savings - Increased Take-Home Pay:
| Employee Savings Example | Without Section 125 Plan | With Section 125 Plan |
|---|---|---|
| Total Annual Pay | $24,000 | $24,000 |
| Less Pretax Benefits | ||
| Health Premiums | $0.00 | $1,200 |
| Medical/Dental Care Expenses | $0.00 | |
| Child Care Expenses | $0.00 | |
| Total Pay Subject to Tax | $24,000 | $22,800 |
| Taxes | $4,674.00 | $4,337.00 |
| After-Tax Health Insurance | $1,200 | $0.00 |
| Net Income | $18,126 | $18,463 |
| Annual Increase in Spendable Income | $337.00* |
* Tax rates may vary for individuals in different tax brackets. State and Local taxes may not be applicable