This option is a win-win solution for your business as well as for your employees. When you offer a POP, you pay less in payroll taxes and will pay the insurance premiums of your employees on a pre-tax basis. This solution benefits employees because their taxable income is lessened, resulting in less income tax that must be paid. Your company will also save on costly insurance premiums and benefit from lower costs for providing health care coverage.
| Without POP | With POP | |
|---|---|---|
| Annual total premiums | $600,000 | $600,000 |
| Annual pre-tax-deductions | 0 | $500,000 |
| Taxable payroll deductions | $600,000 | $100,000 |
| FICA taxes (7.65%) | $45,900 | $7,650 |
| Without POP | With POP | |
|---|---|---|
| Income | $20,000 | $20,000 |
| Annual pre-tax-deductions | 0 | $2,000 |
| Taxable income (30%) | $20,000 | $18,000 |
| Estimated taxes | $6,000 | $5,400 |
| Post-tax premium deductions | $2,000 | $0 |