Manufacturers & Distributors ARTICLE -
Pretax Benefits Can Attract New Hires
Target Audience: Manufacturing and Development Companies, M&D Industry, Baby Boomers, Pretax Benefits Interest, 401k Plan and Retirement Plans Interest, All Employees and Employers With Benefits Plans
Baby boomers are getting ready to retire, and the competition for skilled workers to replace them is heating up. You need to offer more than a good salary to stand out from the crowd, but what can you do? The answer may lie in pretax benefits.
Pretax benefits are those that employees pay with money you reserve from their earnings before taxes. In addition to allowing employees to save income and FICA taxes, providing certain pretax benefits may allow you to help them pay for rising costs, and you don’t have to pay FICA taxes on the amounts you hold in reserve.
What can you provide pretax?
The best-known example of a pretax benefit is probably the employer-sponsored retirement plan, such as a 401(k) plan. (Note that contributions to 401(k) plans are pre-income-tax only — they’re still subject to FICA tax.) But there are many other types of pretax benefits you can provide. Some that you might consider offering include:
HSAs. One pretax benefit gaining popularity is the Health Savings Account (HSA), which must be coupled with a high deductible health plan (HDHP). To qualify as HDHPs, policies must have annual deductibles of at least $1,150 for individuals and $2,300 for family coverage.
Through pretax payroll deductions, employees put the amount they save in insurance premiums into HSAs, which can then be withdrawn tax free to pay for a variety of medical and dental costs. If you contribute or make matches on employee contributions, you aren’t required to pay FICA taxes on those amounts.
Employees may use HSAs for qualified medical expenses, including vision, dental and some over-the-counter medications. Unused amounts can be rolled over to the next year. Maximum contributions for 2009 are $3,000 for individuals and $5,900 for families.
Tuition reimbursement
Another popular benefit that can attract employees and improve your employees’ skills, tuition reimbursement encourages employees to seek additional training. Neither you nor the employee is taxed on the money used for tuition. Tuition reimbursement plans vary widely. They may cover all or some of tuition expenses, and may or may not include the cost of textbooks, fees and other related expenses.
Child care reimbursement
One of the most burdensome expenses many employees face is child or dependent care. You can help by reimbursing a percentage or a fixed amount. Again, neither you nor the employee is liable for taxes. Child care includes day care, nursery schools, before- and after-school programs, and private sitters. The maximum reimbursement is $5,000 per year.
Life, disability and long-term care insurance
One of the more relatively inexpensive pretax benefits you might offer is insurance coverage. You deduct the cost of premiums from employees’ paychecks before taxes, while using your group buying power to offer coverage at lower rates. Employees don’t pay taxes on the premiums you pay and, in most cases, the insurance coverage you offer is deductible for the business. Keep in mind that there is a $50,000 limit on life insurance coverage, but not on disability, long-term care or special coverage such as cancer insurance.
Commuter costs
In an effort to encourage use of public transportation, more employers are deducting the cost of that transportation from employees’ paychecks before taxes. Participating employees reduce their FICA and federal income tax costs, and may see lower state income tax liability, as well. Eligible costs include up to $230 per month for carpool parking expenses or up to $120 per month for mass-transit expenses in 2009. And, beginning in 2009, employers can exclude up to $20 per month paid to employees who commute by bicycle.
Take the lead
The pretax benefits you offer should be determined by the makeup of your workforce. Younger workers may appreciate help with child care or tuition expenses, while older personnel may be more interested in insurance. Commuters of any age are likely to appreciate help with those costs.
Regardless of which benefits you select, pretax benefits can give you a leg up in recruiting the workers you’ll need to carry you through the baby boomers’ exodus. And that’s a boost worth having.
Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.
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