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Welcome
to First Benefits, Inc.
IRS Section 125, Cafeteria Plan
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Many
businesses have already taken advantage of Section 125 of the
Internal Revenue Code to establish a Cafeteria Plan for their
employees that maximizes tax advantages for both the business
and their employees.
What
is a Section 125 (Cafeteria) Plan?
Although the plan goes by a variety of names,
such as Premium Only Plans (POP), Salary Reduction Plans, Flexible
Benefit Plans and Premium Conversion Plans, all are based on the
guidelines of the Internal Revenue Code Section 125. In layman's
terms, a Section 125 Plan permits employees to purchase fringe benefits
with PRE-TAX dollars instead of AFTER TAX dollars.
The election by employees to voluntarily
reduce their gross taxable income results in an employee paying
fewer taxes in the area of Federal, State and FICA taxes.
Furthermore, when the employee reduces
his gross taxable income, the employer also saves money by paying
less FICA on the reduced payroll base.
How
the Cafeteria Plan Works
Eligible employees may voluntarily elect
to purchase qualified insurance benefits (Health Plans, Disability
Plans, Cancer Plans, Medical Supplement Plans and Group Term Life
Insurance Plans) and have premiums for these benefits deducted
from their paycheck before taxes are taken out. This will result
in employees paying less taxes and having more take home pay.
The Employer will pay less FICA contributions, which will increase
the business bottom line and make the benefits more affordable
to its employees.
Here
is an Example for the Employee
A married employee claiming
one exemption and earning $1000 monthly with $100 deducted for
fringe benefits.
The Employee's Benefit
Deductions....
| Dependent Health |
$51 |
| Medical Supplement |
20 |
| Disability Income |
16 |
| Cancer Supplement |
13 |
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________ |
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$100 |
The
Employee's Take Home Pay...
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Company without
Section 125
| Gross Pay |
$1000 |
| Taxes |
$250 |
| Benefits |
$100 |
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______ |
| Take Home Pay |
$650 |
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Company with
Section 125
| Gross Pay |
$1000 |
| Benefits |
$100 |
| Taxes |
$225 |
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______ |
| Take Home Pay |
$675 |
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The
Employee Saves
$25 Per Month!
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Here
is an Example for the Employer...
A company having one hundred employees
with salaries averaging $1000 per month and fringe benefits deductions
averaging $100 per month.
Company without
Section 125
| Total Monthly Salaries |
$100,000 |
| Company FICA Taxes |
$7650 |
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_______ |
| Total Expense |
$107,650 |
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Company with
Section 125
| Total Monthly Salaries |
$100,000 |
| Company FICA Taxes |
$6885 |
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_______ |
| Total Expense |
$106,885 |
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The Company
Saves
$750 per Month or
$9000 per year!
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Steps
to a Successful Cafeteria Plan...
We can assist your group with installing
a Cafeteria Plan by implementing the following steps:
- Selection of Benefits - We will work
with your benefits committee to design the products that best
fit the needs of your employees.
- Documentation - We will assist you
by providing a Sample Plan Document, a Summary Plan Description
and a Corporate Resolution.
- Enrollment - In order to make the
plan simple to understand and simple to communicate, we will
provide the following assistance to make your plans a success:
- Announcement Letters.
- Meetings with Supervisors and
Managers
- Employee Information Kits.
- Group enrollment Meetings
- Individual Consultations, if necessary.
- Support - When the enrollment is completed,
we will meet with your payroll department and provide them any
assistance needed to install the new payroll reduction amounts.
We will also assist your accountant to prepare the necessary
tax forms for this plan.
Ongoing Enrollments - We will meet
with new employees on an ongoing basis to enroll them in the
Cafeteria Plan.
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Breaking
NEWS!
If your group is less than 100 persons, and you only have
a Premium Only Cafeteria Plan, you know longer need to complete
a 5500 form! And its RETROACTIVE!
Click
Here for More Details! (Must have MS Word)
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To receive information,
please complete all the information below
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