LLC Eligibility

[Guest budman]

We have a self-funded health plan that has premium only under the cafeteria plan. There is not a FSA only a health plan. The company is changing from a corporation to a Limited Liability Corporation. Does this cause the partners to be ineligible to participate in the self-funded health plan or are they just excluded from the pre-tax cafeteria plan? Does it also exclude their spouses and other dependents from the health plan?

[jmor99]

LLC owners excluded only from the 125 plan. No one excluded from the health plan (including spouses and children). Regarding spouses of LLC owners: The answer as to whether they can participate in the 125 plan might be dependent on how their personal tax return is filed. In other words, are they married filing jointly? If so, there might be a problem with the spouse of the owner participating in the 125 plan. LLC owners get specific treatment regarding health care expenses on their personal tax return. Their accountant should know. No problem with children participating in a 125 plan (subject to notes below).

The 25% test under a 125 plan deals with key employee contributions (pre-taxed health premiums)vs. non-key employee contributions. Spouses and children are not considered key employees (unless their income places them in that category).

The other requirement is that the plan cannot discriminate in favor of Highly Compensated Employees (HCEs) as to eligibility to participate, and as to contributions and benefits. This definition includes spouses and children of HCEs as HCEs themselves. There are others in this forum who believe that this definition is so unclear that it is not legally enforceable in a court of law, and therefore can be disregarded.

[Guest Kara B]

What pre-tax plans are available to the owner of a LLC? I believe that a HSA and FSA are allowed -- anything else?

Thanks.

[leevena]

What pre-tax plans are available to the owner of a LLC? I believe that a HSA and FSA are allowed -- anything else?

Thanks.

The HSA is available, but not the FSA.

[Guest Kara B]

Thanks.

Is there anything in addition to the HSA that could benefit the LLC owner on a pre-tax basis?