125 FLEX SAVINGS ACCOUNTS
ECP can offer your employees the opportunity to set aside a certain amount of each paycheck into an account before paying taxes. These accounts allow employees to select certain benefits that are generally paid on an after-tax basis and, through salary reduction, pay for these benefits on a pre-tax basis. Plus, this plan allows your business to save on taxes at the same time. Ask ECP about establishing a 125 Flex Savings Account for your company.
125 FLEXIBLE SPENDING:
Section 125 stands for the Internal Revenue Code and can save an employer and employee money through pre-tax calculations.
There are several ways to utilize Section 125. One of the most popular uses is to have a Premium Only Plan (POP). This allows insurance premiums, including health, dental and vision to be deducted before taxes and therefore, reduces your taxable income. As such employers reduce tax expenses due to lower taxable wage base limits, it eliminates the tax liability on the wages that are deducted as premiums on the employee’s paycheck. Thus, the employee sees a benefit by having their taxable income reduced and bringing home more money per pay period. Many refer to this plan as the Win-Win Benefit.
Employers may also wish to sponsor a Flexible Spending Account (FSA). A FSA allows employees to put a set dollar amount in a Health Savings Plan or Dependent Care Savings Plan, which is then tax-free. The money put into either fund will be reimbursed based upon your expenses for out-of-pocket medical and childcare. The benefits are the same as POP account in regards to the tax savings for employers and employees. The additional benefit to employees is that they can utilize the program to budget for high out-of-pocket expenses throughout the year.
For example, you have an employee whose pre-teen child is going to have braces in the next year. Insurance doesn’t cover this expense or covers very little. In order to have more “take home pay,” that employee could elect to have a per pay-period dollar amount put aside in their FSA account. This means that the employee benefits from higher take-home pay, plus being able to reimburse themselves, up to their deposit maximum, to pay for the braces.
Contact ECP today to learn more about our Section 125 programs and how you can benefit.