A Premium Only Plan (POP) allows employees to pay their portion of health insurance premiums with pre-tax dollars, saving them 22.65-40% in federal, state, and local taxes. Employers also benefit from establishing a POP by eliminating payroll taxes of up to 7.65% on employee premium payments. Any type of business can set up a POP, though owners may not participate directly. A POP can be started at any time during the year, including mid-year, and is especially beneficial during health insurance renewal periods when rates typically increase.

1. Health Insurance with a
Premium Only Plan
Employees Benefit at
No Cost to Employer*
Provide to:
Sample Client

2. How Employers Benefit from a Premium Only Plan. A Premium Only Plan is unique in that
it is one of the few employee benefit plans that will continually pay dividends back to the
employer. A POP Plan does this by eliminating the 7.65% in employer matching Social Security
and Medicare taxes, and sometimes Federal and State unemployment taxes. Depending on
the state, employers may also be eligible for workers compensation savings.
Who Can Participate in a Premium Only Plan. Employees of regular corporations, S
corporations, limited liability companies (LLCs), partnerships, sole proprietors, professional
corporations, and not-for-profits can all reduce payroll taxes by establishing a Premium Only
Plan. While the Code prohibits a sole proprietor, partner, members of an LLC (in most cases),
or individuals owning more than 2% of an S corporation from participating in the POP, owners
may still benefit from the savings on payroll taxes by sponsoring the plan for their employees.
When Is The Best Time To Start a Premium Only Plan? Contrary to popular belief a
Premium Only Plan can be started any time during the year. The best time to establish a POP
plan is when your group health insurance plan renews. Because most groups receive rate
increases at renewal this is the ideal time to allow employees to sign a new POP Election form
prior to the new Plan Year. It is also quite acceptable to start a new short Plan Year anytime.
Say it’s May, and you prefer a calendar Plan Year from January 1 to December 31. You can
start a Short Plan Year, say on June1 and end the first Short Plan Year on December 31. After
December 31 your POP Plan will be on a calendar year from January through December.
Disclosure: The POP account is available as of June 2013. The Affordable Care Act may be changing the ability
to utilize this benefit for your employees. We should receive more information by 2014.
Premium Only Plan
Premium Only Plan, or a POP Plan, is an essential part of any employer group health
insurance and ancillary benefit program. POP is the part of the IRS Code that allows
employees to purchase health insurance and other ancillary benefits tax free. A POP Plan
legally allows your employees to pay their portion of medical insurance premium and other
ancillary benefits premiums using pretax or tax-free dollars.
How Employees Benefit from a Premium Only Plan. Employees avoid paying any income
tax on premiums they pay through a POP Plan. The premium is actually deducted before the
taxes are calculated. This means an employee doesn’t have to make $300 in order to pay a
$200 insurance premium because the tax liability is immediately eliminated. The Government
allows this to help make insurance more affordable. Employees save 22.65% to 40% of their
pre-tax POP premium deductions in just federal income taxes alone. The actual tax savings
are on city, state, and federal income taxes, including Social Security and Medicare taxes on
all money employees use to pay for their portion of insurance premiums. Under a POP
employees take-home pay is increased which helps reduce the high cost of providing health
coverage for family members
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3. $8,339.43
Federal Tax 18.00% $5,700.00
State Tax 5.00%
SSI & SDI Tax 8.65%
32%
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(888) 205-9979
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*A taxpayer should seek tax advice based on the
taxpayer’s particular circumstances from an qualified tax
advisor.
Five Years of Savings with pre-tax dollars $13,197.15
Percentage of Yearly Savings
Before Taxes Cost:
Take home pay with
NO Health Insurance $3,895.95
Cost with after Tax Dollars: $694.95
Yearly Savings with pre-tax dollars $2,639.43
Report for
Sample Client
Sample of how an Employee would benefit from a POP account.
Employee Pays from Earnings Yearly Cost of Medical Plan
Monthly Plan Cost: $475.00 After tax Cost:
Created by:
Ted Ruiz
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