 
125 Plan Administration
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It's All About Reducing Payroll Taxes
We believe you should use products and services that best
fit your business. The biggest or most complex is no more
the best, than is often the simplest or cheapest. The secret is
finding the match that’s right for you. Payroll and
Benefits Administration touches many aspects of your
business. Job costing or cost of goods, employee moral,
legal requirements, compliance issues, and time requirements are
just a few examples. These services must fit with
your Employee Benefits Options, Retirement Plans, Worker's
Compensation Insurance, and Expense Reimbursement needs.
It would be foolish for us to proclaim that we were the best at
what we do and all these other fields as well.
We believe you should choose those disciplines that
are right for your success. That way you may rest assured
you have the best combination for your business.
Our pledge
is that we will connect with your choice of providers to
provide seamless and cost effective integration whenever
possible. |
Another benefit to you is that all your eggs are not in one
basket. If a vendor holds all your services and you become
dissatisfied, then you must change everything. With
distributed responsibilities you can choose more appropriate
combinations without having to relocate all services.
Although H
R Ledger can integrate with these plans, we do not directly
administer them. Please consult your broker or HR
consultant for expertise in these areas. We will be
pleased to refer you to one of our professional affiliates,
should you need one.
Please call (800) 451-1136 or write us, just
Click
Here
to receive more details on how HR Ledger connects with 125 /
Flex / Cafeteria Plans to save you money. |
125 / Flex Cafeteria Plan Primer
OR
"How to Save Tax Dollars!"
Briefly there are three types of 125 plans available to
employers.
Under "Section 125" of the Internal Revenue Code, employers are
allowed to offer a POP Plan, a Cafeteria Plan, or a Flexible
Spending Accounts to their employees. Both the employer and the
employees will benefit with tax and perhaps workers compensation
savings as a result of these arrangements.
How many other opportunities do you have to increase pay while
decreasing your costs?
|
EMPLOYER SAVINGS |
Without
POP |
With
POP |
| Total
Annual Payroll |
$400,000 |
$400,000 |
| LESS
Employee Premiums |
$0 |
<$24,000> |
| Net
Taxable Payroll |
$400,000 |
$376,000 |
| F.I.C.A.
Taxes (7.65%) |
$30,600 |
$28,764 |
| F.I.C.A.
TAX SAVINGS (lower costs) |
|
$2,204 |
|
EMPLOYEE SAVINGS: |
Without
POP |
With
POP |
| Gross
Annual Salary |
$40,000 |
$40,000 |
| LESS
Pre-tax Premium |
($0) |
<$2,400> |
| Net
Taxable Income |
$40,000 |
$37,600 |
| LESS
Income Tax (28.65%) |
<$11,460> |
<$10,772> |
| LESS
After-tax Premium |
<$2,400> |
($0) |
| Net Pay
Check Amount |
$26,140 |
$26,828 |
| ANNUAL
INCREASE IN PAY CHECK |
|
$688 |
|
This is
a simple example for illustration purposes only and does
not represent all the advantages of pre-tax savings.
Please review your specific situation with a qualified
advisor before initiating any employee benefit plan. |
Premium Only Plans or
"POPs"
When the rules of Section 125 are followed, employers may deduct
employee paid premiums for certain group health and disability
related benefits on a tax-exempt basis. This means the employer
pays less payroll taxes and the employee will pay less
F.I.C.A. and income taxes. Employees will actually see an
immediate increase in their paycheck. Some individuals are
prohibited from participating in these plans, such as partners in a
partnership, owners of an S-Corporation or sole proprietors.
Although these individuals are not allowed to personally
participate, their employees can utilize the tax savings offered by
these plans and the employer still enjoys the FICA savings.
Specific employer and employee savings depend on the total amount
employees contribute towards Section 125 qualified benefits. This
is perhaps the most under utilized loop holes employers have to
reduce employee costs.
Cafeteria Plans or 125 Plan
Typically an employer offers a variety of choices in many different
benefit areas. Medical, dental, vision, child care, parking fees
are some examples. Each employee chooses the plan or combination of
plan options that best suite their individual or family needs. The
employer may pay all or a portion of the benefit costs. Generally
an employer sets a specific amount of the benefit cost they will
contribute. Should the choices of the employee exceed the benefit
contribution of the employer, that portion of the total cost becomes
a pre-tax deduction. These plans are generally found in larger
companies with a more sophisticated workforce.
125 FSA or
Flexible Savings Accounts
125 Flexible Spending Accounts allow employees to pay for certain
medical expenses on a pre-tax basis. By paying for these expenses
before being taxed, employees lower their taxable income, pay less
in taxes and increase their take-home pay. Essentially each employee
is given an amount of "benefit dollars" in an account to be "spent"
towards qualified expenses as they occur.
These expenses include:
·
Employee contributions toward medical-related insurance premiums.
·
Medical-related expenses such as deductibles, co-insurance, or
uninsured medical expenses.
·
Dependent care expenses.
By offering a 125 FSA, employers are able to realize a number of
benefits including: Reduced Payroll Costs - Social Security
contributions are reduced for each dollar of employee
participation! Employers are able to:
·
Cost Control - An employer can control the company's share of
medical costs, without limiting employee choices.
·
Address the Needs of a Diverse Workforce - An employer can offer
individually tailored benefits at little or no additional cost to
the company.
·
Recruit and Retain Quality Employees - An employer is viewed in a
positive light by current and prospective employees because a
benefit package is being provided with the employee's interests in
mind.
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