POP Participant Benefits
Section 125 Premium Only Plans, often referred to as POP Plans, reduce income tax liabilities for employers and employees. This is because IRS Section 125 allows employees to pay their portion of medical insurance premiums and health savings account (HSA) contributions using pretax or tax-free dollars.
Section 125 IRS Code allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Employees can often realize 30% - 40% in tax savings because contributions to a POP are exempt from payroll taxes. The actual tax savings are on city, state, and federal income taxes, including Social Security and Medicare taxes on all money employees use to pay for their portion of insurance premiums. Under a Section 125 POP, employees take-home pay is increased which helps reduce the high cost of providing health coverage for family members. Of course actual savings will vary depending upon the employee's tax situation.
If offered by the employer, the qualified group insurance premiums that can be paid with pre-tax dollars under a POP Plan are extensive, including health, dental, vision, disability, employee group term life (up to $50,000), cancer, hospital indemnity, and accident. HSA contributions can also be made pre-tax, so the combination of a POP Plan and HSA is very cost effective and beneficial to the employer and employee. Note that employee HSA contributions in 46 states can be made pre-tax when the employer has a Section 125 or POP document. However in AL, CA, NJ and WI, HSA contributions are still state taxable.
Unlike health savings accounts, employees cannot participate in an HRA except as part of their employer's health insurance plan.
For more information on HRAs, go to Products and Services, POPs.