Chamber 125 Plus is a program endorsed by the
Orlando Regional Chamber of Commerce to provide Section 125 Premium Only Plan
and Flexible Spending Account Administration to its members at reduced fees.
In many cases the fees can be reduced to zero. In all cases, the fees are
lower than for non-chamber members. The section below explains the tax-savings
advantages of Section 125 Plans for employer-groups.
What is a Section 125 Cafeteria Plan?
Section 125 Plans are called by a variety of names: pretax plans, cafeteria
plans, salary reduction plans, and salary redirection plans. But all these
names refer to plans designed to reduce taxes for employers and their employees
under Section 125 of the Internal Revenue Code.
Section 125 permits employees to pay for certain benefits before taxes through
pre-tax deductions from their paychecks. These pre-tax deductions have the
effect of lowering the employee's taxable income. Consequently, the employee
pays less in FICA and Federal Withholding taxes. Most employer sponsored insurance
plans qualify to be "pre-taxed." This includes employee-paid costs
for medical insurance, dental insurance, group term life insurance and a variety
of others. In addition, dependent-care expenses (usually child-care) and many
kinds of vision, dental and medical expenses can be "pre-taxed."
Also, since the employer's portion of FICA is calculated based upon the employee's
taxable earnings, the company will reduce its FICA tax liability by 7.65%
of every employee dollar that is deducted before taxes. The employees' total
tax-savings will usually range from 17.65% to 46.25% (marginal tax rate +
FICA). Most employees fall into either the 22.65% or 34.65% category. This
mean that every dollar "pre-taxed" will save an employee in the
27% marginal tax rate about 35 cents (27% + 7.65%). This is not a temporary
saving which must be repaid at the end of the year when the tax return is
filed. For both the employer and the employee, it represents permanent tax-savings
(a true win-win).
The law requires that certain documents be put in place to set up and operate
a Section 125 Cafeteria Plan. These include the Plan Document (kept up to
date with changes in the law), Summary Plan Description, (where necessary)
a properly executed Salary Reduction Agreement on each participant and (depending
upon the group size and nature of the plan) preparation of the annual Form
5500. In addition, annual compliance testing must be performed to make sure
the plan is not top-heavy (a maximum of 25% of contributions under the plan
can come from owners and other "highly compensated" employees).
Since most payroll services and payroll software packages now make it easy
to pretax benefits, many employers, unaware of these requirements, simply
begin making pretax deductions from their employees' paychecks without having
ever properly set up a plan.
The IRS penalties for doing this can be severe!
good news is that we can offer professional services to insure that you stay
in compliance, to enjoy the tremendous tax-saving potential of Section 125,
but never incur any penalties. If your company is a member of the Orlando
Regional Chamber of Commerce, these services can be offered to you at a reduced
charge, under the Chamber's endorsed program called Chamber 125 Plus. Chamber
members can often reduce their costs to zero under a special benefit offer
endorsed by the Chamber.
is Chamber 125 Plus?
Types of Section 125 Cafeteria Plans: POPs and FSAs
Premium Only Plans (POPs)
are two types of Section 125 Cafeteria Plans. Premium only Cafeteria Plans (usually
called "POPs") are designed to reduce taxes on insurance premiums
only. The portion of the premiums paid by the employee can be pre-taxed under
the plan. Most insurance premiums qualify. For many groups, setting up a POP
is all that is required for both the company and its employees to realize substantial
tax-savings. It is important to make sure your plan is in compliance with IRS
regulations, because noncompliance can result in heavy IRS fines. We can furnish
a qualified POP plan to the employer and keep the plan current for a modest
cost. In many cases, that modest fee can be reduced to zero by taking advantage
of a voluntary employee benefit portfolio.
Other sources of POP Plans are available. CPA and law firms can often offer
POP plans, but the cost is generally high. The only consistently high quality
administration available at an affordable price will probably be through a professional
Third Party Administrator.