Business Tax Strategy · ProfitGuard Plus
How to compare payroll tax
savings programs
Several of these programs look identical in a sales meeting. They are not identical underneath, and the differences only show up later, usually on somebody's tax return. Here are the questions that actually separate them, and what a good answer sounds like.
Quick answer
- Ask whether an employee has to complete an activity each month to keep the benefit. The answer should be no.
- Ask what the reimbursement is paid out of, and whether it is taxable to the employee. It should flow through a Self-Insured Medical Reimbursement Plan and should not be taxable.
- Ask whether every reimbursable benefit is medical care under Section 213(d). Gym memberships and gift cards are not.
- Ask whether the plan is paired with a real ACA medical plan, which makes it an integrated Section 105 plan.
- Ask to see the plan documents, and ask whether your CPA can read them. A refusal is your answer.
- If an insurance policy sits inside the plan, ask whether its premium is paid before or after tax.
- Compare the whole value, not one number: the employer's payroll tax saving and the benefits the employee actually receives.
The six questions
Does an employee have to do something monthly?
If the benefit depends on completing an activity, that is an activity based design, and the tax treatment does not follow the way people assume. A good answer is no, the benefit is the care itself.
What is the reimbursement paid out of?
It should come from a Self-Insured Medical Reimbursement Plan under its own written document, not back out through the Section 125 cafeteria plan. Reimbursements sent back through the cafeteria plan are taxable.
Is every benefit medical care under Section 213(d)?
That definition is the line. Real preventative care qualifies. Rewards, gift cards and gym memberships do not.
Is it paired with a real medical plan?
It should be. Pairing with a qualifying ACA medical plan makes it an integrated Section 105 plan rather than a standalone product.
Can I see the plan documents? Can my CPA?
A written plan has documents. If the answer is that the structure is proprietary, that is the answer.
If there is an insurance policy inside, how is its premium paid?
After tax and the claim pays out clean. Before tax and the claim payment becomes income the employee has to report, usually without being told.
What a good answer sounds like
Specific and calm. Yes, here are the plan documents. Here are the code sections. Here is the memorandum. Take it to your accountant. A good answer hands you paperwork up front rather than after you sign.
A weak answer is trust us, or everybody does it this way, or a long explanation of why somebody else is not compliant. A provider talking about their competitors instead of showing you their own documents has told you something.
Compare the whole number, not half of it
Some programs quote only the employer's tax saving. Some quote only the benefit value. Ask for both, because both are real and they land in different places. About 600 dollars per employee a year is what the business keeps in payroll tax. About 1,400 dollars is the value of the care the employee receives. Only the first is money on your books, and anyone telling you the combined figure goes back into your budget is overstating it.
The full breakdown is on how much an employer saves per employee.
Frequently asked questions
How do I compare payroll tax savings programs?
Ask six questions: does an employee have to complete a monthly activity, what is the reimbursement paid out of, is every benefit medical care under Section 213(d), is it paired with a real medical plan, can you and your CPA read the plan documents, and if an insurance policy is inside, is its premium paid before or after tax.
What is the single most useful question?
Does an employee have to do something every month to keep the benefit. It is visible from the outside, you can usually answer it from your own paperwork, and it separates most of the designs that fail from the ones that do not.
Should I compare on the savings number?
Not on its own. Ask what portion is employer payroll tax saving and what portion is benefit value to the employee. They are both real and they land in different places.
What if a provider will not show me the plan documents?
That is your answer. A written plan has documents behind it, and the tax code is public. Nobody following it needs to hide how.
Can I bring these questions to you?
Yes, and you should. We would rather hand you the documents up front and have your CPA read them than win on a sales meeting.
This is education, not tax or legal advice. Actual savings vary by payroll structure, participation, and state and local tax. Talk to your CPA about your specifics before you decide. ProfitGuard Plus is a marketing name for a structure built on IRS code sections 125, 106(a), 105, and 213(d).
See your ProfitGuard Plus number
Enter your W-2 headcount and see the combined value first. Then we'll run your exact numbers. You can also read the full walkthrough on the ProfitGuard Plus page or call +1 (586) 899-1003.
Keep Reading