If you are not aware of non-discrimination testing and you have a premium only plan, you will probably want to know that the IRS requires everyone who uses premium only plans to submit to non-discrimination testing once a year. At first glance, the idea of being audited by the IRS every year may be a little intimidating, but there is good reason behind the scrutiny of the IRS when it comes to the incredible benefits that premium only plans provide their solicitors: The reason for nondiscrimination testing is to prevent highly compensated employees from taking advantage of the benefits that POP plans provide for employers and employees alike. Such advantages, as you may already know, consist of an increase in take home pay for employees ranging between 1-300 dollars and a 7.65% savings annually on employers matching FICA tax. Needless to say, these benefits are meant to compensate those who meet the necessary requirements for financial compensation.
The benefits for complying to federally mandated nondiscrimination testing, in regards to premium only plans, is simple, and, in many ways, all too obvious: complying with IRS regulations allows for favorable tax treatment in way of employer provided benefits. I might also suggest that pre-testing or testing early in the year will allow for corrections if failures do occur.
It is essential for everyone who uses premium only plans to follow through with and comply to all of the federal regulations involved with the use of POP plans. Nondiscrimination testing is a big factor in way of compliance. If employers do not adequately follow all the steps necessary for nondiscrimination testing, or they fall out of compliance with federally mandated regulations while using POP plans, all discriminatory benefits are included in the gross pay of highly compensated employees. This also means, consequently, that employers can no longer take advantage of the 7.65% tax break on their annual employer matching FICA tax. In other words, if an employer fails to comply with IRS regulations and testing procedures, any and all benefits that were received from that employer's premium only plan must be re-paid.
Overall, the greatest concern when filing nondiscrimination testing is that your company is in compliance with all regulations before you begin. As stated above, the initial reason for nondiscrimination testing is to avoid the abuse of these benefits by highly compensated employees (HCE). Although there are no clear parameters for what defines an HCE, there are at least some general guidelines that indicate whether or not an employer fits the description of an HCE:
• Highly compensated:
o More than 5% shareholders.
o An employee with gross annual compensation over $110,000.
o A spouse or dependent of any of the above defined employees.
• Key employee: employee who at any time during the plan year or any of the four preceding plan year is:
• An officer with gross annual compensation over $160,000.
o An owner of at least 5% of the company, or
o An owner of at least 1% of the company with gross annual compensation over $150,000.
As these are only general guidelines, the water is still pretty mucky however. With policy changes, compliance updates, and a dictionary sized headache for paperwork, the struggle to meet these regulations can be rather daunting.
Fortunately Taxfreepremiums offers nondiscrimination testing software, handles all subscription work, provides all required documents, is 100% online, and automatically handles any and all compliance updates at a very competitive price. With the services provided by Taxfreepremiums, using premium only plans becomes free of complications, allowing you to feel comfortable while you enjoy the benefits of these plans.