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Section 125 and Company Ownership

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.

In general:

  • 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.

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