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What is pre tax insurance

what is pre tax insurance

Sometimes people call it a “ cafeteria plan ” because employees choose

exactly what they want, and everyone wants something different.

Accountants call them “ Section 125 Plans ” because that’s what the IRS calls

them. They’re pre-tax deductions, so the government is giving employees a

discount price for benefit deductions. And the benefits are often paid tax-free.

They help reduce staff turnover. When staff morale and staff loyalty improve,

employee turnover declines, and staff productivity rises. Every employer loves

to reduce payroll taxes and every employer wants greater workplace


Employers and employees want to reduce turnover, because employee

turnover is stressful. Employees love pretax deductions because they save

the income tax, the Social Security tax, and the Medicare tax. Cafeteria plans

are a no-cost benefit that can supplement a medical plan. That’s why some

people call it “ supplemental insurance ” or “ work group insurance ”. It can

help reduce the cost of deductibles and co-pays. People want to save medical

costs. Some employers cannot afford a health plan. They can still raise morale

and protect people with supplemental benefits. An employee program doesn’t

have to be so expensive that it’s unaffordable. And everyone wants to reduce

staff complaints. The cost of the insurance is a pay check deduction, which is a

convenience many people appreciate. The supplemental insurance plans are

similar to group insurance and often improve employee morale because they’

re benefits people cannot easily buy on their own.

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of up-to-date

human resources information, including HR law, HR procedures, and HR

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Look for HR Answers Now. You’ll see ways to cut employer taxes, cut payroll

taxes, and cut turnover. You’ll see ways to improve productivity, reduce

employee complaints, and improve workplace communication. It’s a free

benefit for the employers who sign up.

Whether you're a member of SHRM (Society of Human Resource

Management), a Mercer Consulting client, a WorldatWork Certified Benefits

Professional (CBP) or just a hardworking generalist, you know that better

benefits help recruitment and morale. HR Magazine, Human Resource

Executive, Employee Benefit News, and many similar publications constantly

focus on cost-effective ways to improve productivity by reducing staff turnover.

Some of the companies that sell Section 125 plans are Aflac, Colonial and Paul

Revere. Sometime the benefits include term life insurance, cancer insurance,

hospital stay insurance, dental insurance, disability insurance, critical illness

insurance, and accident insurance. Who doesn’t want to be offered employee

benefits? Who would turn down a dental plan? Why not offer employee

benefits on a voluntary basis? There’s no waste, because each person

chooses what he or she wants, and gets the equivalent of a discount by

purchasing the insurance on a pre-tax basis. That’s why it is done via payroll

deduction. Paycheck deductions mean easy payments instead of big lump


Employers buy group term life insurance but how can they know how much

each family really needs? It’s not like health insurance, which everyone can

Category: Insurance

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