Ineligible Partners for Sec 125 plan

[B21]

IRC Sec 125 does not consider self employed individuals ,including 2% Sub-s owners, to be eligible employees for participation in an employer's cafeteria plan.

Is there an ownership threshold for partners which would make certain partners eligible employees? Specifically, nonequity partners or partners that own less than 2% of the partnership?

 

[rocknrolls2]

B21, For partners in a partnership, there is no de minimis percentage threshold which would render them NOT self-employed individuals. Therefore, if a partnership had 500 partners, not one of them could be considered "employees" under the cafeteria plan rules, regardless of whether each partner owned an equal percentage of the partnership.

[Scott A. Davis]

One plus is Partners in a partnership, Sub-S owners, LLC members, Self-employed all can deduct the premium cost of their benefits (Health, Dental, Vision) coverage from thier scheduled income, up to 100% of the cost, in the year incurred, also reducing thier scheduled FICA Taxes.  This offsets the ineligibility for Section 125 has been available for many years.  Everyone with an eligible HSA contribution is allowed to take the deduction on their Federal 1040 and that reduces their taxable State Income (in most states), no FICA savings.