Simons Bitzer recently conducted our annual Business Leader Survey.  When asked what is the most pressing concern facing your business today, 24% responded “needing more cash flow.”  With statistics like that, we wanted to share some information that could help business owners lower their taxes immediately thereby increasing their cash flow.
For some employers, Premium Only Plans, also known as POPs, can be a great option for lowering taxes.  These plans are for employers who do not want to offer a full Flexible Spending Account but still want to offer a tax benefit to their employees.
A POP is a Section 125 Cafeteria Plan that allows employer-sponsored premium payments to be paid by the employee on a pre-tax basis instead of after-tax.  Examples include Group Medical, Group Dental, and Group Disability among others.  POPs using Section 125 provide both business owners and their employees with added savings on top of the value of the coverage plans themselves.
Section 125 of the IRS code allows employees to pay for certain benefits with pre-tax dollars.  How can this save money?  Employers can realize significant savings by paying lower FICA and other tax matching contributions.  “For every dollar of employee contribution into the POP, employers save 7.65% FICA taxes,” states Kevin Aaron, Tax Specialist at Simons Bitzer.  This reduction in payroll taxes can be quite significant.  Employees also benefit by having a lower taxable income and pay less in federal, state, and local income taxes.
We contacted Paul Kainrath from Allstate Insurance in Noblesville to provide specific examples.  His examples show the hard dollars that business owners and their employees can save with Section 125 benefits.