What are the Benefits of Sponsoring a Reimbursement Plan?
There are several significant benefits to sponsoring a reimbursement plan. They include:
Tax Savings for Your Company
In any reimbursement plan, all contributions made by the employer are non-taxable dollars. This saves your company a significant amount in Federal, FICA, FUTA, Workers’ Compensation, and some State income taxes.
For example, a company with 50 cafeteria plan participants might save:
|Expenses Before Cafeteria Plan||Expenses After Cafeteria Plan|
|Employee (EE) Paid Medical Premiums||0||-75,000|
|EE Before Tax Medical Expenses||0||-50,000|
|EE Before Tax Dependent Care Expenses||0||-25,000|
|FICA Taxes (7.65%)||-114,750||-103,275|
|Annual Savings||$11,475 per year!|
Savings for Your Employees
Any contributions made to a reimbursement plan by the employer are non-taxable dollars to the employee as well. These amounts are a substantial benefit to employees for medical, dependent care, and transportation expenses. However, with a Cafeteria Plan, your employees save an additional amount in Federal, FICA, and some State taxes.
For example, an employee with a moderate income might save:
|Income Before Cafeteria Plan||Income After Cafeteria Plan|
|Adjusted Montlhy Salary||$3,000||$3,000|
|Before-Tax Medical Expenses||-0||-100|
|Before-Tax Dependent Care Expenses||-0||-300|
|Taxes- Federal & Social Security||-750||-650|
|After-Tax Medical Expenses||-100||-0|
|After-Tax Dependent Care Expenses||-300||-0|
|Net Monthly Salary||$1,850||$1,950|
|Yearly Savings||$1,200 per year!|
Offering a Stronger Benefit Program
An attractive and comprehensive benefit package can be an invaluable aid to your company. Not only does it increase employee satisfaction, in turn improving employee productivity, it can substantially decrease hiring and training costs by lowering turnover and increasing company loyalty.