Read The Transcript Below:

Steven (00:51):

Hello everyone and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals edition. I’m your host, Steven Jarvis, CPA, and with me today I have Chris Gaddis who is the managing partner of GP Agency and we’re going to talk about some of the tax fund of all the various benefits that could potentially be offered to employees. So Chris, welcome to the show. 

Chris ():

Yeah, thanks for having me. Appreciate it. Happy New Year. 

Steven ():

Happy New Year. Yeah, we’re recording this just after the New Year kicked off. I feel like it’s going to be a good one for taxes. They still feel very relevant to me and to everyone I talk to and I’m especially excited for this conversation because it’s something that’s really prevalent in our lives, but something that doesn’t get a lot of attention. So I’m glad that you’re here and can help us dive into understanding the tax benefits of different things that can be or get offered to employees.

(01:43):

And then later in the show we’ll talk more tactically about how people can get access to resources and to services like what you offer. So Chris, to kick this all off, part of the reason I was excited to have this conversation is that whether we’re talking about the employee side, which is going to be the clients of a lot of our listeners or the business owner side, which could be some of our listeners themselves and also the clients of a lot of our listeners, this is going to be a topic that’s going to, I think going to resonate with a lot of people because it is just so prevalent and I did my time as an employee at big companies and especially in my earlier years as an employee, always you get onboarded, you see all these different benefits on your pay stub, you see these different things coming in and out, but not a lot of time and attention gets focused on how do we actually use these either from the employee side or probably more relevant for this conversation from the business owner side to make sure we’re really taking advantage of tax benefits, of tax planning, of potential opportunities we’re offering to our employees.

(02:44):

So that’s a big broad stroke to paint there. But as you think about this, I mean how are you drawing people into this conversation? Where’s your starting point? 

Chris (02:58):

Well, I think when you really look at it, no one wants to pay tax and so any opportunity they have to benefit themselves instead of the government, that’s a conversation they’re willing to have. If you’re willing to go down that road and find opportunities to not only save money but also to add benefits for example, as an employer, to add benefits for your employees to utilize. When you look at that pay stub, there’s that pre-tax category up top where if we’re able to put some pre-tax deductions there, it’s not a dollar-for-dollar deduction necessarily to the employee on their paycheck or their net take-home pay. And it’s also a savings to the employer for not having to pay that employee tax, that FICA that they’re seeing a lot on that pay stub. So it helps in both areas.

Steven (03:33):

I think for a lot of people when they think pre-tax, especially if they’re listening to a podcast like Retirement tax services, I mean everyone’s going to immediately think of, oh, okay, 401k contributions, there’s a pre-tax, well potentially pre-tax that we haven’t elected Roth. Some people might also start thinking, okay, well health insurance that can be pre-tax, but Chris, give us examples because there’s actually quite a few different things that can fit in that bucket.

Chris (03:55):

Yeah, absolutely. And that’s part of what we do at GPA agency. We do a lot of individual coverage to help with tax planning, but also on the group side working with business owners on the benefits that they’re offering. And so from a benefits standpoint to be able to put things in place, dental vision plans on the lower end, 401k, obviously health insurance, there’s wellness plans out there, which I’d like to spend some time on because I think there’s a huge opportunity there that many people are not utilizing. So when you really start to look at what you can do and how they can utilize those plans, it all comes down to the benefits that the employee wants and needs because the employers out there competing in a marketplace that employees have a lot of options. And so the ability to attract and retain those employees is important and benefits go a long way towards that.

(04:41):

And so when you start putting those pre-tax benefits in, and it’s an education process more than anything, we find because just understanding not only how their paychecks work, a lot of employees, they don’t deal with it every day. That’s not their job. They’re not an accountant, not a CPA, they’re not in the financial services world. So understanding how those things work, how pre-tax versus post-tax or they’re just taking the deduction on their tax return, how all those things kind of play together helps them make educated decisions for them and their family. And we’re seeing some really negative trends with employees not taking benefits forgo those things and dealing with sickness, financial issues, other issues that can be addressed by some of the benefits they’ve available or could be available through their employer. 

Steven (05:26):

I’m really glad that you brought up the non-tax benefits of this conversation because pretty much any tax planning area I talk about, I like to remind people that we need to make good life decisions and then figure out the most tax-efficient way to do them. Because spending a dollar to save 30 cents always puts you 70 cents behind if you weren’t already planning on spending that dollar. And Chris, I would imagine the same applies here, that we need to make sure that this is a smart decision for the business as a whole. We need to understand these other benefits and then figure out the most tax-efficient way to go about it. 

Chris (05:57):

Absolutely. And it’s interesting because you think the number one reason for bankruptcy is unpaid medical bills. That’s a huge problem that we have and we can address that through benefits and through a medical plan, but also through a gap plan to help offset some of the costs out-of-pocket costs that are really hurting the people that we trying to protect through those benefits. So yeah, understanding that, like you said is very important. It’s something that we don’t do a good job of.

Steven (06:24):

Chris, I always like to make sure I’m helping listeners understand when they should be looking for different types of opportunities. So I definitely want to come back to the wellness plan that you talked to about, but kind of broadly speaking, business owner means a whole lot of different things. What size of business, what number of employees, what type of revenue? I mean how are you helping people identify, here’s what we need to have a deeper or better conversation about the benefits being offered? 

Chris (06:47):

Yeah, I mean, so we’re talking about business owners, there’s an inherent benefit right away. There are things we’re able to write off, things we’re able to do, and really for most benefits to employees or more form a group. And so having to have 50, a hundred employees, all that’s not necessary. And employers are also not educated on the benefits side of as to what there is to offer and the cost associated with. They think they’re offering benefits, it’s going to cost them a ton of money to do that. That’s not the case by guidelines. Federal guidelines, the only thing they have to pay for is 50% of the employees’ premium on health insurance and they don’t even have to offer health insurance until they hit 50 employees. So there’s a lot of other benefits that they could be offering their employees like dental, vision, and cancer accident plans, especially children having accident plans.

(07:33):

I’ve benefited from those in the past. So disability opportunities and these benefits when offered through a group chassis like that, a group opportunity are much more affordable than they would be on an individual side. So having all these things there. So to answer your question, really any business owner is going to have some opportunity, two or more employees, there’s benefits available, and then from there it’s really not as costly as you would think and you’re helping your employees and you’re helping your bottom line because an employee who’s not productive, who’s not working, who isn’t happy in their job, they don’t have access to the things that they need is not a productive employee. And so this is an area that for very, very high bank for your buck, very high return on investment, you can put really great benefits in employees, really good education very seamlessly and very little distraction or issue in implementing those things when done properly, when done properly.

Steven (08:26):

Definitely. I love that you keep tying in those other benefits that go beyond just the numbers of it. Chris, circle back. Tell us more about this wellness plan that you brought up.

Chris (08:35):

That’s something that I’m always out there looking for is a new unique opportunity for business owners or clients or individuals or whatever it may be. And this is one of those unique things that kind of has called it a triple win from the product side and selling it. You need to make money to do those things and it pays us, which is nice and it’s not an expensive benefit, but there’s no net cost to the employer or the employee and it also helps the employee save money and the employer save money. So everyone saves in this case. And as you mentioned, I keep bringing up these other things outside of benefits that really help the business owners and these clients. So there’s this term that I love called presenteeism. I dunno if you’ve heard of this. Basically, it comes from an employee who is at work but not really present.

(09:18):

They’re present technically, but their mind is on other things. I’ve got these expenses, I’ve got this problem, I’ve got this medical bill, I’ve got all these other things going on, and so their productivity and everything goes down and that worry. And so they’re not happy. That hurts the culture, it hurts productivity, it hurts those around them. It’s not a good thing. And so how do you fix that? That’s a deep-rooted problem in a number of different areas. So these wellness plans have been around for quite a while, actually came about as part of the Affordable Care Act that was passed in 2010 for those of you CPAs, and everything’s part of section 105 of the tax code, self-insured medical reimbursement plans. They’ve been called a number of different titles. But really the unique thing is again, the employees. It’s a pre-tax deduction. So when we talk about pre-tax deductions, the ability to drive down the taxable income, which saves in taxes for the employer and the employee, and it creates a benefit reserve and we’ll see a hundred to $150 for these employees and those dollars can be added to their paycheck even though technically they are taxable again.

(10:21):

Or they can use that to actually buy what’s called 213D, another area of the code 213D-qualified products. And these products are the products we’re talking about. These would be the dentals, the visions, the disability products, all of these things that employees are having to say, should I send Susie to camp or should I baseball or do we pay for braces or do I buy dental insurance or do I buy gap plan for our medical plan to offset our medical costs here and there, we’re actually creating dollars for them to use towards buying those benefits. So it’s really rewarding process to go through when we’re helping employers save money. The employee have access to benefits and the ability to pay for benefits that normally they wouldn’t even take out because those are real dollars coming out of their paycheck. And so I won’t bore you guys with the math of it all, but essentially there’s no reduction in their net pay. So when you can do that for an employee and doesn’t change their net take-home pay, that’s a win-win for everybody.

Steven (11:15):

Yeah, absolutely. And there are behavioral things in there as well because sometimes for business owners, especially with smaller teams, it might feel like, well, if I’m going to invest more in my employees, why I just give ’em more take-home pay and let’s move on. But we want to, do the same with helping our clients plan for things and putting things in different buckets. We want to make sure that we’re setting people up for success. And like you said, I mean life happens, things come up, and helping to set up reserves and have funds set aside for those things can have a huge impact on that person’s life. And yes, it’s going to benefit the company from a performance standpoint, but at the end of the day, you’re helping employees just like you’re helping your clients, just like you’re helping your own team members, all of those kinds of things. 

Chris (11:58):

And to that point, just giving the employee more money doesn’t actually fix their problem because again, they’re getting taxed on it, so now they’re losing 30, 40% of it, however much they’re losing their personal tax situation, but they’re not making great decisions with those dollars. And we’ve heard all the time, even saving for retirement, for example, most Americans have a hard time there. I forget the exact statistic, but just even come up with $500 for household emergency expenses, fixing a water heater flat tire. Most households have trouble doing them. The majority of households have trouble doing that. So education is so important in these circumstances because not that the employer has a responsibility to that, right? That’s on us as individuals certainly. But when an employer actively participates from that side of things, it just helps everything go so much smoother and it benefits them as well.

(12:50):

As an employee understands how their paycheck works, how those dollars work when they buy benefits, a dollar doesn’t cost a dollar because we’re not paying tax on those dollars if they’re pre-taxed. So if I’m saving for retirement, all those things that we all know in this profession and take for granted, it’s something that most employees out there just don’t understand fully. And so when we educate, when we teach ’em those things, it’s actually that peace of mind that they really want. The money’s just not the differentiator there. And we’ve seen that time and time again and so many times, I mean there’s a reason when we put these programs into place, people, 98% of people that participate in this, and that’s because it solves a real problem and that’s what we need to do, solve problems, not just create more by getting people more money to spend on things they don’t need or more sugar to create these issues or whatever it is that they’re doing that we see time and time again.

(13:42):

So there’s a lot of ancillary benefits to the group as a whole because this goes deeper and deeper, right? When you start looking at healthcare and the cost of healthcare and how that’s risen, we’ve seen this trend of business owners increasing deductibles to reduce the premiums so they help their bottom lines, which is understandable because healthcare has gotten so out of control from a premium perspective, but now it’s created this huge issue where an employee has some routine surgery, they have to go in, my mom got a knee replacement today. You go in and what if your deductible is 7,000 out of pocket, 12,000? They can’t afford that. That’s not something they just have sitting there. Or those are dollars that could be better used somewhere else. So again, not having those things properly done and them having to deal with that trouble now and an employer who has no clue what’s going on and that they’re losing sleep or not able to put food on the table or all the stuff that we hear, it’s just a snowball effect. So that’s why I really enjoy what we do as far as education and bringing these things to business owners and individuals too, to really show them that, hey, it doesn’t have to be what it’s always been.

Steven (14:46):

Yeah, that’s a great reminder. It doesn’t have to be what it’s always been, but we’ve got to take action to change that. Medical in particular is one of those areas that with the tax cuts and jobs act, the number of people taking the standard deductions opposed to itemizing went way up. Medical’s always been a hard one to try to deduct directly on your tax return. Right now, you not only have to be itemizing, you have to be above the 7.5% floor on adjusted gross income. So practically no one is going to be able to deduct medical expenses if they wait until tax time to try to claim those, but if there’s different vehicles available to them to be able to deduct those to dollars upfront, whether through a wellness plan, a health savings account, whatever that might be. Again, for advisors listening, we want to be thinking about this from a couple of different aspects as far as opportunities we might be identifying if we’re working with employees, we need to make sure we’re asking those questions about what benefits are available to them and whether they’re taking advantage. A lot of these things you might have to opt into, you might have to establish how much is going to go into a program. You can’t just sit back and take it for granted. And then obviously on the employer side, on the owner side, there’s a lot of decision making, a lot of education that has to go on. These things aren’t just magically happening in the background without someone championing the benefit.

Chris (16:01):

Yeah, exactly. And that’s really like where does that responsibility lie? Because these are issues. These are things that because of your profession that I know because of my profession, but the majority of Americans who are in professions outside of financial services that don’t understand, these aren’t second nature. Where do they get that information from? They got to go. They’re already raising families, working their jobs, taking the kids to sports or doing whatever they’re doing. And so it really is a hard thing to really figure out where’s the point of which this needs to change. And when we really look at it, it is on us as financial professionals to get the word out. That’s what we do. We’re compensated to do so and so as we’re able to have these conversations with our clients, with our business owners, and as we’re able to affect positive change through products that solve problems, and we have a saying in our firm, people over product, it’s not about the product.

(16:56):

There are people that have a problem, they need a solution, and then the product kind of fills that. And so taxes are a problem. It’s a big chunk of our income that are being taken for all services we need and all of that, but it is something that we see, all right, I make $75,000 this year. No, you didn’t, right? There’s automatically that’s deducted for taxes, so there’s already a reduction there. So there’s a lot of things that go into that if we start to have these conversations, which I appreciate you having me on to have this conversation and talk about alternative solutions, which I think anytime in tax planning that you’re talking about that makes some people a little bit nervous, but it’s necessary to be creative and to think of new ways to fix problems and help each other.

Steven (17:39):

Absolutely. Chris, regardless of the topic, one of the questions I like to ask about products or services or new planning ideas is where do you see this go wrong? Who’s not fit for this? Who needs to say, you know what, I need to focus on something else.

Chris (17:52):

Anyone that’s earning W2 wages is a fit for this. And again, that’s why I really love this program. I’ve been in the industry, I think it’s my 20th year, 21st year, and so I’ve been a little while. I got involved very early and I’ve always been trained to sell product, and that’s the way we always were trained. It always felt a little dirty, you’re selling a product but you really want to solve problems. It took me a while to figure out how to be really consultative in my approach, help my clients solve a problem, and that way it’s a win-win. And specific to this, I think there’s a way that everyone wins and that’s having these conversations obviously, but just really looking at a unique opportunity to help each other with something that is not known by a lot of people. There’s kind of the standard things we always do and we’ve always done, and it doesn’t always get the job done.

(18:44):

Having unique opinions, unique ideas, unique thoughts and discussing and talking through potential opportunities to work together on those things. That’s what I want to do and that’s why I’m here because there’s no one size fits all. Certainly there’s all different ideas and strategies and every company’s a little bit different what they need. But what I really love about this, again, kind of answering your question full circle here, is because this helps W2 employees, this is an opportunity for them to do things that 1099s can already do with some of the deductions and the things that we can do. And so we kind have the best of both worlds, where now it kind of puts a little more power and control in a W2 hand to be able to take a part of a program that reduces their burden and gives them access to some benefits and some opportunities that they wouldn’t normally get. And so that’s kind of the fun part of it all.

Steven (19:33):

I love that. I appreciate you coming on, and having this conversation. We try to cover a wide variety of topics because while I would love to be able to just stay really narrow and focus just on the one thing I’m most excited about, there are so many aspects of a client’s life of the planning that we can do. That’s why we cover so many topics on this podcast. It’s why last year at our first annual conference this coming fall at our second annual conference, we’re going to have an agenda full of different topics all tied back to topic or to taxes, but there’s just so many areas we could potentially benefit clients. So Chris, if people listening are specifically interested in learning more about how you and your team go about this, how can they follow up directly with you?

Chris (20:16):

Yeah, absolutely. You can check out GPagency.com or hit me at Cgatis@gpagency.com. Love to have a conversation with anybody about that and whatever I can do to help, there’s obviously a lot of ways we help on the individual side and on the group side, and that’s another way. Another thing I really like about what we do on the group side that has a unique opportunity because when you work one-to-one, you can help that person, which is great, but when you go to one group and affect 20, 50, a hundred lives at one time, there’s some unique to that as well.

Steven (20:48):

Well, Chris, before we wrap up, we always try to make sure that we’re taking great information and turning it into value, which we look at as giving people action that they can take. And so as I think about our conversation today, you mentioned education multiple times, and in my mind, this is both education for the advisors themselves as well as then the education they provide to their W2 clients, their business owner clients. You’ve got to commit to understanding these things at a level that allows you to identify when they’re going to be relevant. The great news is you don’t have to be the end-to-end expert. You just have to be able to say, oh, here’s a situation. This might be relevant. And then you find your resources, your partners, the people you’re going to collaborate with to make these things happen. So that education piece is so critical, whether it’s this topic or any other related to tax planning.

Chris (21:35):

Yeah, I agree a hundred percent. That’s the thing, you don’t have to be the expert. You have people like me and others that have certain areas of expertise can really lend a hand in those areas. And so yeah, just being a resource to your clients and being someone that educates themselves so they have that knowledge to pass along, I think is very important. So with what you’re doing with your podcast and everything, I commend you and everyone listening is trying to improve themselves, that’s tremendous.

Steven (21:58):

I certainly appreciate that and certainly that education topic is really important to me. So if you’re listening and you haven’t yet take a chance to give us a five-star review and leave a comment so we can keep spreading this education platform, make sure you’re marking your calendar for the RTS conference this fall, September 25th through 27th, and keep an eye out for our weekly relevant tax stuff, email, newsletters that come out every Friday. There’s always great content in there. Chris, again, thank you so much for being on the show. Really appreciate your time here. It’s been great to connect with you on this.

Chris (22:31):

Yes, thank you. Appreciate it. Thanks, everyone.

Steven (22:33):

For everyone listening, until next time, good luck out there. And remember to tip of your server, not the IRS!