Subject: Proposed Regs for Cafeteria PlanRic
Last fall I subscribed to a webinar hosted by Eflexgroup regarding the proposed cafeteria plan regulations. I’m hoping you can help clarify a couple of items for me. I could have misunderstood what was being said or not understood the true context in which it was said. These are the notes I made regarding these areas of concern:
1. “HSA contributions can only be made as part of the cafeteria plan. No post-tax deductions.” I took this to mean that individuals, such as partners, who cannot participate in the cafeteria plan could not have payroll deductions for HSA, even if they are done post-tax.
Nope it should have been understood. No pretax deductions without a cafeteria plan. But post tax are ok Just like an IRA.
2. “S-Corp owners cannot participate even with after-tax dollars.” I’m not sure if this is in reference to non-qualified benefits or the cafeteria plan in general. Is it possible for an owner of an S-corp to participate in the groups medical, dental or vision plan with after-tax deductions? The general assumption is that deductions made on an after-tax basis are not included in the 125 plan, but I seem to recall a statement made that contradicts that assumption. Above 2%
S Corp owners cannot be in a cafeteria plan even with after tax dollars. The new regs are stating this very clearly. How the CPA wants to handle the deductions on the S Corp tax return should be outside of the cafeteria plan. The reason for this stringent requirement is that S Corp sole props and partners are not considered employees. Section 125 is an employee benefit. Hope that helps.
Any additional information, clarification or guidance you can provide is greatly appreciated.
Thank you very much.
Glad to help anytime Donna