Pre-tax Payment of Insurance Premiums and HSA Contributions

Most employers permit their employees to pay their group insurance premium contributions on a pre-tax basis. They do so through a Premium Only Plan as permitted by Section 125 of the Internal Revenue Code (125 Plan). In order to permit pre-tax contributions for health insurance premiums or health savings account (HSA) contributions, a Section 125 Plan must be implemented. If one is already in place, the current plan probably needs to be re-stated to include HSA language.

It’s easy to start! It’s easy to maintain! 

In order to have a valid 125 Plan, the IRS says you must have:

  • a written Plan Document; and
  • a Summary Plan Description (SPD); and

The Benefit of a 125 Plan

  • 25% Income Tax Savings for Employees: Employees don’t pay Federal, State, Local, or Social Security taxes. **You should check with your accountant for state and local taxes other than Ohio.
  • 8% Payroll Tax Savings for Employers: You, the employer, do not have to match Social Security taxes nor do you pay Worker’s Compensation premiums (in Ohio) on employee contributions.

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