In general, most business owners are ineligible for participation in a Section 125 cafeteria plan (e.g., FSA, Commuter benefits) because these owners are considered self-employed individuals, rather than employees of the company. Only employees can participate in cafeteria plans.
- Owners of a C Corporation who receive W-2s may participate in cafeteria plans, since they receive wages and are technically employees.
- The following individuals cannot participate in an FSA, HSA, HRA, or Commuter Benefits plan:
- Partners in an LLP or partnership
- Members in an LLC taxed as a partnership
- Sole proprietors (or single-member LLCs)
- More-than-2% owners of an S Corp or an LLC taxed as an S Corp.
Zenefits does not provide tax advice. Owners should always consult a tax professional first to determine whether their particular corporate structure allows enrollment in a cafeteria plan in compliance with IRS regulations.