Reviewed by a licensed benefits professional. Last reviewed: November 11, 2026.
A Section 125 premium only plan document template is a starting draft of the written plan that makes employee premium deductions pre-tax. A template is fine to use, but only the completed, signed and dated document counts with the IRS. Most owners who search for a template already take pre-tax deductions in payroll. This guide shows what the template must say, when to sign it, and what a missing document costs.
Key facts (2026):
- A cafeteria plan is a written plan that lets employees choose between cash and certain qualified benefits (IRS Publication 15-B, 2026).
- A plan that is not in writing, or that misses a written plan requirement, is not a cafeteria plan (Proposed Treasury Regulation Section 1.125-1(c)(6), 2007).
- Employers and employees each pay 6.2% Social Security tax and 1.45% Medicare tax, and the 2026 Social Security wage base is $184,500 (IRS Tax Topic 751, 2026).
- A 2% shareholder of an S corporation is not treated as an employee for a cafeteria plan (IRS Publication 15-B, 2026).
- Cafeteria plans no longer attach Schedule F to Form 5500 (IRS Notice 2002-24, 2002).
- Taxpayers may rely on the proposed cafeteria plan regulations until final regulations are issued (Federal Register, August 6, 2007).
What is a Section 125 premium only plan document?
A Section 125 premium only plan document is the signed, written cafeteria plan that lets employees pay their share of health insurance premiums with pre-tax pay. A premium only plan, or POP, is the simplest Section 125 cafeteria plan. It covers premium deductions and nothing else.
The Section 125 premium only plan document names the benefits, the eligible employees, the election rules, the contribution limits and the plan year. Without that written document, the IRS treats every pre-tax premium deduction as taxable wages (Proposed Treasury Regulation Section 1.125-1(c)(6), 2007).
A payroll setting is not the plan. A carrier's benefit summary is not the plan either. Our premium only plan guide for small businesses explains how a POP works day to day, and the Section 125 cafeteria plan guide covers the full plan family.
What must a Section 125 premium only plan document template include?
A Section 125 premium only plan document template must include six items: benefits, participation rules, election procedures, contribution method, maximum contribution and plan year.
Those six items come from Proposed Treasury Regulation Section 1.125-1(c)(1) (2007). The table shows what each one looks like in a premium only plan.
Table: The six required parts of a premium only plan document
| Required item | What to write in a POP document | Common template mistake |
|---|---|---|
| Specific description of each benefit and its coverage period | Each premium paid pre-tax, such as medical, dental and vision, and the period each one covers | Listing only "health insurance" when dental and vision are also deducted |
| Participation rules | Who is eligible, any waiting period, and a statement that only employees can join | Leaving the waiting period blank |
| Election procedures | When employees elect, the period the election covers, and that elections are locked for the plan year except for permitted changes | No language on mid-year changes |
| How contributions are made | Employee salary reduction, employer contributions, or both | Not stating that deductions are by salary reduction |
| Maximum contribution | A dollar amount, a percentage of pay, or a method, such as the employee's share of premiums | Leaving the maximum undefined |
| Plan year | The plan year, such as January 1 to December 31 | A plan year that does not match the insurance renewal |
Source: Proposed Treasury Regulation Section 1.125-1(c)(1), Federal Register (August 6, 2007).
The plan terms must also apply the same way to every participant. If your plan allows changes for marriage, birth or loss of other coverage, the document has to say so. Our Section 125 plan rules guide covers the election change rules.
Is a free premium only plan document enough?
A free premium only plan document is enough only if you complete every blank, sign it before the plan year starts, and update it when your benefits change.
Here is the honest view from the advisor side. The template is rarely the problem. The problem is the template that sits unsigned in a download folder while payroll takes deductions. The IRS does not grade the source of the document. The IRS asks whether a complete written plan existed on the first day of the plan year.
A free template usually falls short in three places:
- Owners. Most templates do not warn that sole proprietors, partners and 2% S corporation shareholders cannot take part (Proposed Treasury Regulation Section 1.125-1(g)(2), 2007).
- Updates. Any amendment must be in writing, and it only applies after it is adopted (Proposed Treasury Regulation Section 1.125-1(c)(5), 2007).
- Operation. A plan that does not follow its own document loses cafeteria plan status (Proposed Treasury Regulation Section 1.125-1(c)(7), 2007).
When does a premium only plan document have to be signed?
A premium only plan document has to be adopted and effective on or before the first day of the plan year it covers (Proposed Treasury Regulation Section 1.125-1(c)(1), 2007).
A calendar-year plan that starts January 1 needs a signed document by January 1. A document signed in March cannot reach back to January deductions. Amendments work the same way. A written amendment applies only to periods after the later of its adoption date or its effective date (Proposed Treasury Regulation Section 1.125-1(c)(5), 2007).
A new plan can start mid-year. It only covers deductions from its effective date forward.
What does a missing premium only plan document cost?
A missing premium only plan document turns every pre-tax premium deduction into taxable wages, so the payroll taxes the plan saved come due (Proposed Treasury Regulation Section 1.125-1(c)(6), 2007).
Here is a worked example. A business has 12 employees. Each pays $250 a month toward premiums through payroll.
Table: One year of pre-tax premium deductions with and without a written plan
| Item | With a signed POP document | Without a written plan |
|---|---|---|
| Employee premium deductions per year (12 x $250 x 12) | $36,000 pre-tax | $36,000 taxable |
| Employer FICA at 7.65% | $0 on those dollars | $2,754 owed |
| Employee FICA at 7.65% | $0 on those dollars | $2,754 owed |
| Combined FICA at stake | $0 | $5,508 |
Source: FICA rates from IRS Tax Topic 751 (2026). This is a hypothetical example. It assumes all wages are under the $184,500 Social Security wage base, and it leaves out income tax, penalties and interest.
The math is simple. $36,000 x 7.65% is $2,754 for the employer. The employees' side is another $2,754. Federal income tax on the same $36,000 is on top of that. The cost repeats for every year the document was missing.
Results depend on your plan terms and IRS rules. Not legal or tax advice.
Who cannot be covered by a premium only plan document?
Self-employed individuals, partners and 2% S corporation shareholders cannot be covered by a premium only plan document, because Section 125 only covers employees (Proposed Treasury Regulation Section 1.125-1(g)(2), 2007).
IRS Publication 15-B (2026) says the same thing in plain words: do not treat a 2% shareholder of an S corporation as an employee for a cafeteria plan. A sole proprietor or an S corporation can still sponsor the plan for its employees. The owner just cannot run personal premiums through it.
This is the mistake that hurts most in small firms, because the owner is often the largest premium on the payroll. Our guide for S corporation shareholders explains what owners can do instead.
Does a premium only plan need testing or a Form 5500?
A premium only plan must pass nondiscrimination rules, but a POP that passes the eligibility test is a safe harbor design. The cafeteria plan itself files no Schedule F with Form 5500.
The safe harbor for premium only plans is in Proposed Treasury Regulation Section 1.125-7(f) (2007). In practice, a POP that lets all employees join on the same terms is in good shape. A separate rule looks at key employees. A plan favors key employees when more than 25% of the nontaxable benefits go to them (IRS Publication 15-B, 2026). Our Section 125 nondiscrimination testing guide walks through each test.
On filings, IRS Notice 2002-24 (2002) relieved cafeteria plans from attaching Schedule F to Form 5500. The notice did not remove Form 5500 duties that apply to the health plan itself under ERISA. An ERISA plan also needs its own paperwork, which our wrap plan document and SPD guide covers.
How do you fill in a premium only plan document template?
You fill in a premium only plan document template by matching every blank to what payroll actually does, then signing and dating it before the plan year starts.
- Pick the plan year. Match it to your insurance renewal when you can.
- List every pre-tax premium. Medical, dental, vision and any other premium payroll deducts pre-tax.
- Set eligibility. State who can join and the waiting period. Leave owners out if they are partners, sole proprietors or 2% S corporation shareholders.
- Write the election rules. Say when employees elect and which mid-year changes the plan allows.
- State the maximum. The employee's share of premiums is a common method.
- Sign and date. An owner or officer signs on or before the first day of the plan year.
- Collect election forms. Every participant signs one before deductions start.
- Store it all together. Keep the document, amendments and election forms in one file.
Copy this checklist and run it against your own document:
Premium only plan document checklist
>
- [ ] Each pre-tax premium is described, with its coverage period
- [ ] Eligibility and waiting period are stated, and only employees can join
- [ ] Election timing and permitted mid-year changes are written out
- [ ] The document says contributions are made by salary reduction
- [ ] The maximum contribution is stated
- [ ] The plan year is stated
- [ ] The document is signed and dated on or before the plan year start
- [ ] Owners who are not employees are left out
- [ ] Every amendment is in writing and dated
- [ ] Payroll deduction codes match the document
Who provides the premium only plan document?
A plan administrator, a benefits attorney or a third-party administrator usually provides the premium only plan document, not the payroll company or the insurance carrier.
Payroll applies the deductions. The carrier supplies the policy. Neither one writes the cafeteria plan. Summit Health Benefits provides the written plan document as part of Section 125 setup, along with employee enrollment and payroll coordination.
Summit Health Benefits charges $35 per enrolled employee per month, and the fee is paid out of the payroll tax savings the plan creates. Summit's plan design produces employer FICA recapture of about $91 to $136 per enrolled employee per month, so the employer still nets about $56 to $101 per enrolled employee per month (Summit Health Benefits, 2026 estimate). A premium only plan alone covers the fee only when an employee's pre-tax premium share is about $457.52 a month or more, because $35 divided by 7.65% is $457.52. Below that, other benefits in the plan make up the difference. Our FICA savings guide shows the math, and you can test your own numbers in the Section 125 savings calculator.
Results depend on your plan terms and IRS rules. Not legal or tax advice.
Get Your Premium Only Plan Document Done Right
A Summit Health Benefits advisor reviews the written plan you have, or sets one up before your next plan year, and shows your payroll tax savings after the $35 per employee monthly fee, which those savings cover.
Frequently Asked Questions
What is a Section 125 plan document?
What are the Section 125 plan document requirements?
Is there a free premium only plan document?
Can I use a premium only plan document template for my small business?
What is a POP plan document in HR?
Is a simple cafeteria plan document the same as a premium only plan document?
Sources: Proposed Treasury Regulation Sections 1.125-1(c), 1.125-1(g)(2) and 1.125-7(f), Employee Benefits: Cafeteria Plans, Federal Register (August 6, 2007); IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits (2026); IRS Tax Topic 751, Social Security and Medicare Withholding Rates (2026); IRS Notice 2002-24 (2002); Groom Law Group, Summary of Proposed Cafeteria Plan Regulations (2007); Summit Health Benefits plan design estimates (2026).