Premium Only Plan (POP)
This plan allows employees to make their contributions to group health and group term life insurance with pre-tax dollars. A Premium Only Plan creates no new benefits. The employer is simply offering a way to obtain favorable tax treatment on benefits already offered.
Here's how the Premium Only Plan works:
- Employees' premium contributions are automatically deducted from their salaries before taxes are taken out.
- Taxable income is reduced by the amount contributed, so employees pay less in taxes and have more take-home pay.
- With employee pre-tax income lowered, employers pay less in Social Security (FICA) payroll taxes. (A business should consult their tax advisor for applicable state legislation.)
A POP is the simplest type of section 125 plan, and it requires low maintenance once it's set up.