Which of the following is ineligible to participate in a Section 125 plan?
Asked by: Prof. Noe Windler III | Last update: October 4, 2025Score: 4.8/5 (18 votes)
What is ineligible to participate in section 125 plan?
Employers can be C corporations, S corporations, LLCs, partnerships, governmental entities or sole proprietorships. However, nonemployees cannot participate in a cafeteria plan; this exclusion applies to partners in a partnership, members of an LLC and individuals who own more than 2 percent of an S corporation.
Which of the following is eligible to participate in the section 125 plan?
Such plans allow employees to pay for eligible expenses, such as health insurance premiums, on a pre-tax basis, thus reducing their taxable income. Full-time employees, part-time employees, and owners of the company generally have the eligibility to participate in these plans.
Can owners participate in a Section 125 plan?
Not according to the Internal Revenue Code (the Code), where Section 125 establishes the rules for cafeteria plans (aka Section 125 plans), which limits participation in those plans to “employees,” a term that excludes individuals deemed “self-employed” under the Code, including sole proprietors, partners in ...
Can C Corp owners participate in Section 125?
C-Corporations (C-Corps) – There are no restrictions; owners and family as well as employees can participate, but the owner must be a W-2/common law employee. Excessive participation of these individuals in a Section 125 plan may cause the failure of certain mandated nondiscrimination tests.
2014-11-12 ProBenefits Client Webinar - Update on Section 125 Plans
Who cannot participate in an FSA plan?
Though there are exceptions, self-employed employees and shareholders who own 2% or more in an S corporation, LLC, LLP, PC, sole proprietorship or partnership are generally ineligible for FSAs. Employees with HSAs cannot enroll in an FSA. However, employees with HSAs can enroll in a child and elderly care FSA.
What are the nondiscrimination rules for Section 125?
A Section 125 cafeteria plan cannot discriminate in favor of highly compensated participants with regard to contributions and benefits. A cafeteria plan must satisfy this component with respect to both benefit availability and benefit utilization.
What is the IRS Rule 125?
Section 125(a). A cafeteria plan is defined in § 125(d)(1) as a written plan maintained by an employer under which all participants are employees, and the participants may choose among two or more benefits consisting of cash and qualified benefits.
Can owners participate in health insurance?
Generally, if you run your own business and have no employees, or are self-employed, your business won't qualify for group coverage. You can purchase qualified health coverage through the Marketplace for individuals and families. With an Individual Marketplace plan, you can: Find coverage for yourself and your family.
Who can participate in a profit sharing plan?
Employee eligibility: Eligibility for participation in the profit-sharing plan can be limited to employees who have worked a stated number of hours (up to 1000 hours of service in the applicable time period) or for a period of time (up to 12 months of service).
What are the disadvantages of a Section 125 Plan?
- Use them or lose them. Employees who put funds into a section 125 plan must use them during the plan year or those funds will be returned back to the employer.
- Employees fund expenses upfront. Employees are reimbursed for expenses as part of a health flexible spending account.
What is a person covered with an individual health plan?
Individual health insurance is for anyone who doesn't have access to employer-sponsored or government-run health coverage.
Can an S Corp shareholder participate in a cafeteria plan?
Only employees can participate in a cafeteria plan; self-employed individuals cannot participate. More-than-2% Subchapter S corporation shareholders are treated as self-employed individuals for this purpose and thus cannot participate in a cafeteria plan.
Which of the following benefits may not be included in a Section 125 cafeteria plan?
A Section 125 Plan generally may not include benefits that result in the deferral of compensation. Also, the following non-qualified benefits may not be offered through a Section 125 Plan: Long-term care insurance and long-term care services. Scholarships under Code Section 117.
Who cannot participate in an HRA?
Generally, employers of any size can offer an individual coverage HRA, as long as they have one employee who isn't a self-employed owner or the spouse of a self-employed owner. HRAs are only for employees, not self-employed individuals.
Can LLC owners participate in FSA?
Can owners or partners participate in an FSA? No. According to IRS guidelines, anyone with two percent or more ownership in a schedule S corporation, LLC, LLP, PC, sole proprietorship, or partnership may not participate.
Who is not eligible for section 125 plan?
However, the following individuals are NOT eligible to participate in Section 125 Cafeteria Plan, Flexible Spending Account (FSA), or Premium Only Plan (POP), or any of its qualified benefits: More than 2% shareholder of an S-corporation, or any of its family members, Sole proprietor, Partner in a partnership, or.
Who is not eligible for Obamacare?
Must live in the United States. Must be a U.S. citizen or national (or be lawfully present). Learn about eligible immigration statuses. Cannot be incarcerated in prison or jail.
Who is eligible for self-employed health insurance deduction?
Through this deduction, self-employed workers who have a net profit for the year can write off 100 percent of their health insurance premium. They can also deduct premium costs for any spouse or dependents. Keep in mind, though, the deduction is limited to how much you pay out of your own pocket.
What is an example of a Section 125 plan?
For example, if an employee is taxed on 30% of their income and they direct $100 of their pre-tax pay to a section 125 account, they would be able to spend the full amount on qualified medical expenses, rather than only $70 received on an after-tax basis.
What is the 125 contribution rule?
125% rule – additional investments
Most bond providers allow additional amounts to be invested each year. Provided such amounts do not exceed 1.25 times the previous year's deposits (the 125% rule), the additional contributions have the same start date as the original investment for calculating the 10 year term.
What are the qualifying events for Section 125?
Examples of qualifying events include marriage, divorce, commencement or termination of a state-registered domestic partnership, addition of a new dependent through birth, adoption, or court placement, a change in employment status for you or your spouse/registered domestic partner, or moving into our out of an HMO ...
What falls under section 125?
A Section 125 plan lets employees set aside insurance premiums and other funds on a pretax basis. This can save workers 20% to 40% in taxes per year but these plans offer employers some tax-saving benefits as well.
What is the Section 125 regulation?
IRC section 125 provides rules for cafeteria plans, also known as flexible benefits plans. Plan participants are permitted to choose among plan benefits without jeopardizing pre-tax benefits. The section provides special rules for highly compensated individuals and key employees, including rules on discrimination.
What is the 55 average benefits test?
Under this test, the average DCAP benefits provided to non-HCEs must be at least 55% of the average benefits provided to the HCEs. Thus, on average, for every $100 reimbursed to HCEs, at least $55 in benefits must be reimbursed to non-HCEs.