What Is A Section 105 Plan?

When the Affordable Care Act (ACA) was passed there was a lot of confusion on what companies could or could not pay for when it came to individuals health insurance plans. As employer sponsored health plan prices continue to rise companies needed another option. A section 105 plan enables employers to reimburse employees tax-free for their own individual health plan.

According to Zane Benefits, “Section 105 plans are a tax-advantaged employee benefit as outlined in the Internal Revenue Code section 105.” For an employer this means, reimbursements are tax-deductible and payroll taxes (FICA/FUTA) are lowered. This option is much better than offering employees a taxable raise that end up costing the company more to compensate for the taxes.  This ends up saving money for both employees and business owners, making it the perfect solution for small business health insurance.

As an employer there could be worry that an employee is taking advantage of the section 105 plan because the company no longer has knowledge of the health plans chosen by employees. With this type of plan an employee may only be reimbursed if they provide proof of their premium payment. Then the employee is reimbursed up to a set amount by the employer. This still gives control to the employer allowing them to decide what the money is spent on.

A section 105 plan is also tax free for the employee. As an employee enrolls in a qualified ACA health plan they are then no longer subject to the tax penalty at the end of the year for not having health insurance. Moreover they are paying for part or all of their health plan premium from the reimbursable funds given to them by their employer.

Do you have any other questions on sections 105 plans? Let us know and we would be happy to answer them.

Read the full article on Zane Benefits HERE

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top