Section 125 & COBRA
Section 125 & COBRA
Cafeteria plans provide cost conscious companies with a way to extend additional pre-tax benefits to employees who can customize a plan to meet their needs; the cost savings benefit employees and employers alike. Such plans also bolster employees’ morale, as well as their wallets; see the exhibits. Mike McKinnis has provided Third Party Administration for over 30 years. Ask about MPRG’s Flexible Spending Account that can save your employees thousands of dollars as well as substantially reduce your employer FICA taxes. Our Dependant Care Account is also administered in our offices at Inverness, as tax savings are greatly appreciated by your employees with children in day care facilities. Again, the employer tax savings are something we sometimes overlook.
Our friendly local staff will answer your employees’ calls and handle each claim as if it were their own. This is truly a wonderful benefit that we communicate to your employees individually.
Exhibit: Employee’s tax savings under a Sec. 125 cafeteria plan *
Current Paycheck
| Gross income | $2,500.00 |
| FICA (7.65%) | $191.25 |
| Federal taxes (est. 18%) | $450.00 |
| State tax ** (est. 5%) | $125.00; |
| Subtotal | $1,733.75 |
| Health premium | $400.00 |
| Dependant Care | $200.00 |
| Flexible Spending | $100.00 |
| Net pay after payments | $1,033.75 |
Paycheck Under Cafeteria Plan
| Gross income | $2,500.00 |
| Health premium | $400.00 |
| Dependant Care | $200.00 |
| Flexible Spending | $100.00 |
| Adjusted gross income | $1,800.00 |
| FICA (7.65%) | $137.70 |
| Federal taxes (est. 18%) | $324.00 |
| State tax ** (est. 5%) | $90.00 |
| Net paycheck* | $1,248.30 |
The difference is $214.55 more on the employee’s net check with the cafeteria plan.
Employer FICA savings $53.55 for this one check!
Group Benifits & Cobra Administration
MPRG provides group insurance products such as life, health, disability, vision, and dental. Our clients deserve to see the best options available so as to make the best decision for its employees. Our staff not only will research vendors across the country; but we also make sure employees are added and subtracted to insure proper coverage. Changes in COBRA requirements have such far reaching implications and liabilities for businesses with 20 employees or more, that our sophisticated software support system allows us to keep you in compliance year round. COBRA laws are constantly changing and the language is difficult to read and harder to interpret. Plus, unnecessary COBRA claims are costly and often the responsibility of the employer rather than the insurance carrier.
With the IRS the burden of proof is up to you. The consequences of non-compliance could be employer fines of up to $500,000 or 10% of group health plan costs. Please don’t overlook this very important service.