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ELIGIBILITY
30. What does the term "employee" mean under Code Section 125?
The term "employee" includes present and former employees of the employer. The term does not include self-employed individuals. Partners in a partnership and 2% S corporation shareholders are considered self-employed, and therefore are not considered employees for purposes of Code Section 125.
Also, all employees who are treated as employed by a single employer under Code Section 414(b), (c), (m) or (n) (i.e., employees of related companies and leased employees) are treated as employed by a single employer for purposes of Code Section 125 (Reg. Sec. 1.125-1, Q&A-4).
31. Can spouses and beneficiaries of participants participate in a cafeteria plan?
Technically, no. The spouse and other beneficiaries of participants may not participate in a cafeteria plan. However, the spouse of a participant may be covered under dependent medical insurance coverage or coverage under a dependent care FSA (Reg. Sec. 1.125-1, Q&A-4).
32. Can a sole proprietor, partner, or more than 2% shareholder in an S corporation participate in a cafeteria plan?
No. Under the provisions of Reg. Sec. 1.125-1, Q&A-4, a sole proprietor would not be allowed to participate in a cafeteria plan. A partner in a partnership would be considered similar to a sole proprietor. In addition, under the provisions of Code Sec. 1372, a more than 2% shareholder in an S corporation is treated as a partner in a partnership for fringe benefit purposes, including participation in a cafeteria plan.
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