Are You Eligible For A Section 105 Plan?

Are You Eligible For A Section 105 Plan?

Some small businesses strive to offer the best health benefit plans to retain or recruit the best employees possible. However, there is a slight problem and it is that traditional health insurance plans provided by employers are too costly. As a result, only more than 50% of small and medium businesses offer some forms of health insurance today.

To get the costs of such benefits under a desirable level of control, affected businesses can offer a Section 105 Plan which is used to reimburse employees tax-free for individual-based health insurance. If you own a small business and might evaluating this approach, read on to find out if you are eligible for such plans.

The Participation Rules for Section 105 Plan

Dependent and employee participation is based on three different factors which include:

  • If the employee is an owner too, does his or her business filing status allow them to receive tax-free reimbursements?
  • Has an employee fulfilled the waiting period?
  • Does he or she meet the basic criteria for the employee class?

Owner Status

First and foremost, you will need to know the various owner types and entities like one-person nonprofits, LLC’s, partners, S-Corporation owners, sole proprietors and C-Corporation owners. Next, it is true that business owners can participate, but their eligibility for tax advantages will depend on their individual business structure. For instance, sole proprietors and partners can participate but have limited eligibility for tax advantages, and C-corporation owners can participate while receiving tax-free reimbursements.

Waiting Period

For starters, employers may need to set a waiting period of up to 90 days. The waiting period is a specific duration of time that must pass before employees are eligible to participate in a health plan. Under recent health reforms, the maximum waiting period one can set extends to more than 2 months. However, the waiting period can still vary according to the employer class. For instance, an employer could set a waiting period of one month for full-time staff and two months for part-time staff.

Employee Class

With a Section 105 Plan, the employer gets to set the eligibility criteria by designating one or more employee classes. These classes can be based on authentic job criteria such as hours worked weekly, location and job role. In addition to that, employers can also use employee classes to offer various levels of benefits to different employee classes as well. For instance, you can use employee classes to offer a monthly $400 to full-time staff and $150 to part-time staff.

To conclude what you have learned so far, you should first note that it is a relatively simple process when it comes to finding out who is eligible to participate in a Section 105 Plan. Eligibility of this plan is defined by two main factors which are waiting periods and employee classes. If one or more employees meet these criteria, they are eligible to participate. Although owners are also eligible to participate in this plan, tax advantages may vary according to one’s business filing status.