Flexible Spending Account (FSA) Participation

[Guest Ira Hayes]

May a S Corp owner (more than 2%) contribute to a FSA?

[Lori Friedman]

The answer is no, regardless of whether the FSA stands alone or is part of a cafeteria plan.

Offered through a cafeteria plan - Sec. 125 participation is limited to the sponsor's current and former employees. Sec. 401©(1)(A), which provides that self-employed individuals are treated as "employees" for Sec. 401 purposes, doesn't extend to Sec. 125. It's clear that a partner can't benefit from a cafeteria plan, and a 2% S corporation owner is considered to be a "partner" for fringe benefit purposes [sec. 1372(a)(2)].

Offered outside of a cafeteria plan - Partners and 2% S corporation owners are ineligible because their medical and health care benefits aren't excludable under Sec. 105 or Sec. 106.

[Guest Ira Hayes]

Thanks, Lori for the prompt response. Am I correct in stating that the allowance of less than 2% owners of a S Corp to participate in a Section 125/FSA plan is a de minimis exception?

Regards, Ira

[GBurns]

Be careful as to how you calculate 2%.

[Lori Friedman]

I'm guessing that GBurns is referring to the attribution rules or the per-share-per-day calculation. I couldn't agree more -- be very cautious about those rules when you calculate ownership percentages.