Section 125 - Premium-Only Plan (P.O.P.)
P.O.P. provides for tax-exempt treatment of employee premium contributions to certain employer-sponsored group benefit plans. These types of plans include medical, dental, vision, disability, and term life. Because employees pay their premiums with “before-tax” dollars, their take-home pay is in effect increased.
By participating in your employer’s P.O.P., you can choose qualified insurance coverage and pay for the premiums with pre-tax dollars. This amount is subtracted from your gross earnings before taxes are taken out, meaning you benefit from the savings of a lower taxable income.
Benefits are more affordable, your spendable income increases, and you pay less in taxes.
Social Security benefits are calculated by averaging an individual’s 35 best income earning years. Salary reductions may reduce an
employee’s covered earnings, thus potentially reducing Social Security benefits. The government uses a formula to calculate these benefits that is subject to change. Any reduction
in your taxable pay may also lead to a reduction in your Social Security benefits; however, for most employees, the reduction in Social Security benefits is insignificant when compared to the value of paying lower taxes now.
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Christopher S. Kudryk
KBenefits specializes in health, dental, vision, life and medicare insurance for employers and individuals in NJ & NY.
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