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We've updated one of our most popular materials. See what's new in our guide to MERPs.

A Guide to Section 105 Plans

Design Requirements for Section 105 Plans

Section 105 Medical Reimbursement Plan Design Requirements

The following Section 105 Plan rules impact design, and are helpful to understand.

  • A Section 105 Plan is paid for solely by the employer and cannot be funded through employee salary deduction.

  • A Section 105 Plan may only reimburse employees during their effective dates in the plan.

  • A Section 105 Plan can reimburse for eligible medical expenses and health insurance premium amounts (see IRS Publication 502).

  • Each eligible healthcare expense must be substantiated.Section_105_medical_reimbursement_plan_design_requirements

  • Reimbursements are generally excludable from the employee's gross income under Internal Revenue Code Sections 106 and 105.

  • Section 105 Plans are considered group health plans, and as such, must be designed and administered to comply with the IRS, HIPAA, ERISA, COBRA, and the ACA. Read more on Section 105 Plan Compliance.

  • Section 105 Plan Documents are required.

Designing a Section 105 Medical Reimbursement Plans

Designing a Section 105 Medical Reimbursement Plan is simple. Here are questions to ask as you design a Plan:

  • What type of Section 105 Plan are we using? (See: Section 105 Use Cases)

  • When will the Plan start?

  • What allowance will we provide? Will we provide the same allowance to all employees, or offer different allowances based on employee class or family status?

  • What makes employees eligible for the benefit?

  • What categories of medical expenses will we reimburse?

  • Who will administer the Section 105 Plan?

  • Do we understand the compliance rules with the Plan?

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