Section 125, in plain terms

Benefits to employees

• Elected amounts are excluded from gross income, lowering federal income tax withholding.
• Those amounts are also generally excluded from FICA wages, lowering Social Security and Medicare withholding.
• The result is more take-home pay for the same coverage — see an example below.
• Employees choose; participation is voluntary, as the statute requires.

Benefits to employers

• The employer’s matching share of FICA (7.65%) is not owed on amounts employees elect under the plan.
• Savings scale with participation, and are measurable before you commit.
• A written plan document and nondiscrimination testing keep the arrangement defensible.
• Alturos serves as compliance subject matter expert so the plan is designed and documented properly.

Health reimbursement arrangements

Pre-tax contributions are half of the picture. A health reimbursement arrangement is how the money comes back out — tax-free.

A health reimbursement arrangement (HRA) is an employer-funded plan that reimburses employees for qualified medical expenses — the costs described in Section 213(d) of the Internal Revenue Code, such as physician visits, prescriptions, and subscription-based primary care.

When an expense is properly substantiated, the reimbursement is excluded from the employee’s gross income under Sections 105 and 106. It is not wages, not subject to income tax, and not subject to FICA. Without substantiation, that exclusion is lost and the reimbursement becomes taxable.

• Reimbursable: qualified medical expenses actually incurred, with proof of the expense and the date of service.
• Non-taxable: when substantiated according to IRS requirements, reimbursements are excluded from income and from FICA wages.
• Alturos tracks participation in concierge-style and subscription-based healthcare and documents it, so each reimbursement is substantiated and defensible.