Section 105 Plans

Under Section 105 of the Internal Revenue Code, an employer can pay for all medical expenses incurred by an employee. The payments qualify as tax deductible expenses and are not income taxable to the employee. These expenses include co-pays, deductibles and all other expenses covered in IRS Publication 502. Any form of business can create a Section 105 Plan, but only the employees can be covered. Therefore, Sole Proprietors, Partners in a Partnership, LLC owners and 2 percent owners in an S Corporation can not participate because they are not considered employees by IRS definition. However, spouses who are employees are eligible to participate. Employers can exclude certain employees from participating if certain non-discrimination tests are met. Employers can further limit what medical expenses are reimbursable under the Plan.

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