Business Tax Strategy · ProfitGuard Plus
Why are indemnity products
not compliant?
The honest answer is that the product is not the problem. A fixed indemnity policy is legal and common. What puts a plan offside is running its premium through the plan before taxes. That turns the claim payment into income the employee has to report, and most of them are never told.
Quick answer
- Fixed indemnity policies are not banned. Accident, critical illness, and hospital plans sit next to good benefit plans every day.
- Pay the premium with after tax dollars and the claim pays out tax free. Nothing to report.
- Run the same premium through the plan before taxes, as a medical expense, and the claim payment becomes income the employee has to report.
- That is the double dip. The employee saves a little going in and owes tax coming out, usually as a surprise at tax time.
- ProfitGuard Plus reimburses medical care under Section 213(d) through the SIMRP. Any supplemental policy is paid with after tax dollars out of the take home pay the structure creates.
- Ask any provider: is the premium paid before taxes or after, and who is telling my employees the claim is taxable?
The product is fine. The structure is the problem.
This one gets told wrong in both directions. Some people say indemnity products are illegal in these plans. They are not. Other people run an indemnity premium through the plan before taxes and call it compliant. It is not. The difference is one question: was the premium paid before taxes or after?
What happens to the employee
Before tax premium, taxable claim. A worker takes a payout, sets none of it aside, and finds out at tax time. If nobody told them, the first call goes to the business owner, and the second one goes to whoever sold the plan. That is what defeats the whole point of the saving they were promised.
How ProfitGuard Plus handles it
The SIMRP reimburses medical care under Section 213(d). Supplemental benefits are funded out of the take home pay the structure creates, with after tax dollars, so a claim pays out clean. The question to take back to any provider is on the plan compliance page, along with the other three warning signs.
Frequently asked questions
Are indemnity products illegal in a preventive care plan?
No. A fixed indemnity policy is a legal, common product. What puts a plan offside is how the premium is paid, not the product itself.
Can a compliant plan include accident or critical illness coverage?
Yes, when the premium is paid with after tax dollars. Then the claim pays out tax free and there is nothing for the employee to report.
What is the double dip?
Money goes in before taxes and a benefit comes out treated as if it had been paid for after taxes. The tax code does not allow both. An indemnity premium run through the plan before taxes is the most common way it shows up.
Why is the employee the one who gets hurt?
Because the claim payment becomes income they have to report, and most of them are never told. They find out at tax time.
What should I ask my provider?
If there is an indemnity policy in this plan, is its premium paid before taxes or after? And if it is before, who is telling my employees the claim is taxable?
This is education, not tax or legal advice. Actual savings vary by payroll structure, participation, and state and local tax. Talk to your CPA about your specifics before you decide. ProfitGuard Plus is a marketing name for a structure built on IRS code sections 125, 106(a), 105, and 213(d).
See your ProfitGuard Plus number
Enter your W-2 headcount and see the combined value first. Then we'll run your exact numbers. You can also read the full walkthrough on the ProfitGuard Plus page or call +1 (586) 899-1003.
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