|What is Section 125?|
The US Congress created Code section 125 in an effort to make benefit programs more affordable for employees.
Section 125 is part of the IRS Code that allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Under a Section 125 program you may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks.
The Section 125 program is a tremendous opportunity for you to enhance your benefits package.
The Premium Only Plan is the building block of the Section 125 Plan. It allows for certain employee paid group insurance premiums to be paid with pre-tax dollars. The qualified premiums (if offered by employer) are:
- Disability (not recommended)
- Employee Group Term Life (up to $ 50,000.00)
- Medicare Supplement
- Hospital Indemnity
Employees can save 20 - 40% of their payroll deductions. The savings are on city, state, and federal income taxes, including Social Security and Medicare.
Employers save the matching Social Security (6.20%) and Medicare (1.45%) taxes, which equates to 7.65% (1.45% for municipalities) of all the dollars put through the plan, a substantial savings.