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Small Business Employee Benefits and HR Blog

Section 105 Software - Health Insurance Expense Reimbursement via Payroll

The easiest way to offer health benefits today is with a Section 105 "Pure" Defined Contribution Plan. With the right Section 105 Software, employers can record tax-free health care reimbursements via their existing payroll service (e.g. Paychex, ADP, Quickbooks, etc.).Section 105 software

Here are some features of good Section 105 Software:

  • Premium Reimbursement
  • Online Health Benefits Administration
  • Electronic Plan Documents
  • Payroll Integration
  • Automated Compliance
  • Employee Classes
  • No Minimum Contribution Requirements
  • No Minimum Participation Requirements
  • No Pre-funding Requirements
  • 24/7 Self-Service Online
  • 7 Year Documentation Storage
  • Same-Day Claims Processing

When reimbursing employees via payroll, it is important to understand the difference between a payroll deduction and a payroll reimbursement. 

What is a payroll deduction? 

A payroll deduction is the removal of dollars from an employee paycheck.

What is a payroll reimbursement?

A payroll reimbursement is the addition of dollars to an employee paycheck.

How does a payroll reimbursement differ from a payroll deduction with Section 105 Software?

When an employer reimburses an employee through a Section 105 Pure Defined Contribution Health Plan, employee gross salaries are not affected. An employer simply adds the dollars that have been approved for employees' qualified insurance premiums to the employee's paycheck using a non-taxable line-item. This concept is often referred to as a "tax-free addition" or "negative deduction" on the paycheck.

What obligations does an employer have to report payroll reimbursements with Section 105 Software?

An employer is not required to report payroll reimbursements made through a Section 105 Pure Defined Contribution Health Plan.

Read more about Section 105 Pure Defined Contribution Plans here.

Defined Contribution Plan Design Worksheets - Free Guide  

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