Premium Conversion

Tax savings illustration

There is financial incentive for an employer to offer Premium Conversion to employees. For every dollar deducted on a pre-tax basis under Sec 125, the employer will not pay the matching FICA tax. See the below illustration.

ABC Company employs 125 people, all of which utilize the employer’s group medical insurance. Each employee pays 10% of their insurance premiums and 100% of dependent premiums.

Assumption: $150,000 deducted from employee paychecks for premiums

With Premium Conversion the employer would save 7.65% of $150,000, a savings of $11,475 per year!