These three terms describe the compliant structure behind employer FICA savings. Here is what each one means, the tax code behind it, and how it stays on the right side of the IRS.
A Section 125 plan, named after the IRC section, lets employees pay for certain qualified benefits with pre-tax dollars. Those pre-tax contributions reduce taxable wages, which reduces both the employee’s and the employer’s FICA. A written plan document and proper administration are legally required.
A SIMERP is a self-insured medical reimbursement plan under IRC §105. It reimburses employees for qualified medical care defined under §213(d). When paired with the Section 125 plan and an ACA-approved medical plan, the pieces form an integrated 105 plan. Reimbursements for qualified medical care are excluded from the employee’s gross income under §105(b).
The preventative care benefit is what gives the arrangement genuine medical substance: virtual primary and urgent care, pharmacy, mental health, weight health and wellness. This is the component the IRS looks for. A program without real §213(d) medical care is the kind of arrangement the IRS has warned against.
IRS Chief Counsel Memorandum 201703013 (1/20/2017) states that the value of coverage from an employer-provided wellness program that provides medical care under §213(d) is generally excluded from an employee’s gross income under §106(a). Pre-taxing this deduction through a SIMERP and a Section 125 cafeteria plan reduces taxable income, generating savings for both parties.
Compliance is not automatic. It depends on real medical care, correct plan documents, nondiscrimination testing and proper administration. That is the entire value of working with an implementation partner. This page is general information, not tax or legal advice. Have your CPA or counsel review the plan documents before you adopt anything.
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