How employers can save up to $6,480 for each employee with health insurance.

Using a Section 125 Cafeteria Plan, employees can pay for certain benefits with pre-tax dollars, potentially reducing their taxable income. This can lead to tax savings on the premiums for employer-sponsored health plans.

To calculate the cost using a Cafeteria Plan, consider the following steps:

1. Annual Premium: The average annual premium for a family health plan is approximately $27,000.

2. Pre-Tax Advantage: If the premium is deducted from the employee's paycheck before taxes, the employee saves on federal income tax, Social Security tax, and Medicare tax.

3. Tax Bracket Consideration: The actual savings depend on the employee's tax bracket. For example, if an employee is in a 24% federal tax bracket, the savings would be significant.

Example Calculation

• Annual Premium: $27,000
• Tax Savings (assuming a 24% federal tax rate):
  • Tax savings = $27,000 * 0.24 = $6,480
• Net Cost to Employee:
  • $27,000 - $6,480 = $20,520

Conclusion

The cost to the employee using a Section 125 Cafeteria Plan could effectively be lower than the full premium cost due to tax savings. In this example, the net cost would be approximately $20,520, depending on the individual's tax situation.

For a precise calculation, it's advisable to consult with a tax professional or benefits specialist to consider all variables, including state taxes and specific deductions.