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Section 125 Plan Eligibility



More than 2% shareholders of an S-Corp, LLC, Partnerships and Sole Proprietors are not eligible to participate in any aspect of a Section 125 plan. Spouses of these owners who work for the company cannot participate because of the rules of attribution.

Owners of a C-Corp are eligible, but they must hold up to the non-discrimination rules.

Plan eligibility is most often set to match the eligibility rules of the medical insurance plan, but it can be different to exclude groups of employees such as union employees, part-time employees etc.

Market reform rules under the ACA require that the employer offer a Group Health Plan in order to offer a health flexible spending arrangement. Also, those eligible for the health flexible spending arrangement must be eligible for the Group Health Plan.

Domestic Partners are generally not eligible because they do not meet the Code Section 125 definition of a qualified dependent.



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