If you offer a Section 125 Premium Only Plan for your employees, you deserve some congratulations. But a Section 125 Plan is not a set-it-and-forget-it deal – you need to check it from time to time to keep it up to date.

Dust Off Your Plan Document. When your plan was first established, a Plan Document was created. This document is at the heart of your Section 125 POP Plan. It spells out all the rules: who’s eligible and who isn’t; how eligible employees are enrolled in the plan (usually automatically); how employees opt out of the plan if they choose; the types of benefits that you offer through the Section 125 Plan; and the plan year.

Every provision of your plan needs to match the day-to-day reality of what’s going on in your plan. Have the eligibility rules changes? Change your plan. Adding new benefits? Change your plan. Have there been legislative udpates? Change your plan.

If the IRS catches you deviating from your plan document, or current legislation isn’t included they can deem the entire plan taxable. Imagine the devastating consequences if your company had to pay taxes on all those previously pre-tax wages!

Check Out What’s New. If it’s been a few years since you implemented your plan, chances are you have amendments and updates that are required to be made. Also many attorney’s and administrators charge update or amendment fees which is big business as they write documents in a manner that purposely require frequent updates (and create unnecessary fees).  

How about a HSA? Remember that the more pre-tax deductions your employees funnel through the Section 125 plan, the bigger the savings for you on the employer matching part of FICA and Medicare taxes, as well as FUTA and possibly State Unemployment tax. If you really want to boost pre-tax savings, how about adding a Health Savings Account? Employees use HSAs to put money aside for future health care expenses for themselves and for family members. The portability of HSAs and their tax-advantaged treatment make these highly popular for employees.  For example, we (TaxFreePremiums) include a provision to allow HSA contributions through the cafeteria plan.

How do you save on Medicare and FICA taxes for your business?
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