Premium Conversion
What is a Premium Conversion?
Authorized by the Internal Revenue Service (IRS), the most common part of a cafeteria or Flexible Benefits Plan is the Premium Conversion feature which allows you the employee to pay for the cost of employer-sponsored benefits with pre-tax dollars. You can pay towards such benefits as health, dental and vision coverage. By using pre-tax dollars to pay for these benefits, you lower your taxable income resulting in a higher take home pay.
The examples provided below illustrate how this feature can save you money.
| Without Premium Conversion | With Premium Conversion | ||
|---|---|---|---|
| Gross Earnings | $1,000 | Gross Earnings | $1,000 |
| Taxes @ 30% | - $300 | Insurance Contribution | - $100 |
| Net Pay | $700 | Taxable Income | $900 |
| Insurance Contribution | - $100 | Taxes @ 30% | - $270 |
| Take Home Pay | $600 | Take Home Pay | $630 |
Please Note: Neither Hirsch Financial Services, Inc. nor your employer assumes responsibility for the accuracy of your calculations or for the resulting tax savings and neither is in any way rendering tax advice. Please consult with your tax advisor regarding your particular situation and how this plan benefits you.
How do I enroll?
Typically you will be offered the opportunity to enroll in the premium conversion feature when you sign up for your insurance coverages. In some cases you may be automatically enrolled when you elect your insurance coverages. Contact your Human Resources Department for further details