LLC member participation in 125 plan

[Guest pinsall]

Can members of an LLC taxed as a partnership participate in a 125 plan?

If so, is there a certain interest % that can participate, like the 2% Sub-S rule?

Thanks

Pat Insall, CPC

[Lisa Hand]

For federal tax purposes, LLCs are generally treated as partnerships. To the extent that an individual member of an LLC is treated as a partner in a partnership or as a self-employed person, it is clear that they may not participate in a cafeteria plan.

[Guest pinsall]

Thanks Lisa,

I noticed another message in this forum on W-2 recieved by a member. What are your thoughts on this? Can a member who also recieves a W-2 participate in 125 plan based on W-2 income?

I have a situation where member of LLC gets K1 income from LLC and also a W-2 from LLC(member is 100% owner of Corp.) due to being an employee in a Corporation where the LLC takes care of the payroll. The LLC is a holding Company where there is some sort of management agreement bewtween the 2. I am told by the member that the LLC is the "employer". I do know that who the employer really is can be quite confusing.

The LLC is new for 2000 being a "spinoff" of a P.C.

Thanks

Pat Insall, CPC

[Lisa Hand]

A number of people who get W2s are not permitted to participate in 125 plans, for example a greater than 2% S corp. owner/shareholder who is also an employee of the S corp. The definition of an employee and the regulations as they relate to a 125 plans are what needs to be looked at in this situation. If the LLC member is considered a partner or member (100% ownership would obviously fall in this category), then they are not permitted to participate. If it were still a P C then it would depended on how it was structured, corporation or S corp, which would determine the level, if any, this owner could participate.

[This message has been edited by Lisa Hand (edited 06-05-2000).]