IRS Section 105 / 125 · For Business Owners
The SIMRP — Lower Payroll Tax, Increase Employee Take-Home, Add a Real Wellness Benefit
A Self-Insured Medical Reimbursement Plan (SIMRP) under IRS Sections 105 and 125 is one of the most powerful — and most underused — tax strategies available to business owners with W-2 employees. Done right, it reduces the employer's FICA tax, increases each participating employee's take-home pay, and adds a meaningful wellness benefit to your business. Done wrong, it's the kind of plan that ends up in an IRS audit. We work with the vendors who get it right.
What is a SIMRP?
A Self-Insured Medical Reimbursement Plan is an employer-sponsored arrangement that pays employees back, tax-free, for qualifying medical and wellness expenses. The plan is authorized under Section 105 of the Internal Revenue Code, which has been on the books since 1954. When paired with a Section 125 cafeteria plan (also long-established), employees can pay into the arrangement with pre-tax dollars — meaning the money never appears as taxable wages.
The mechanism works because both code sections give specific, established tax-favored treatment to qualifying employer-provided medical and wellness benefits. When you stack them — Section 125 for the pre-tax contribution, Section 105 for the tax-free reimbursement — the net economic effect is real money saved by both the business and the employee.
The key word is properly-structured. The IRS has audited and unwound poorly-designed plans where there was no actual underlying insurance, no real wellness activity, or where the documentation didn't hold up. The plans that survive audit have all five pieces in place: (1) a real underlying insurance contract, (2) actual qualifying wellness activity, (3) a proper Section 125 plan document, (4) annual non-discrimination testing, and (5) correct W-2 reporting.
How it actually works
Once your plan is in place, here's what happens on a typical pay cycle for a participating employee:
Employee participates in qualifying wellness activity
Through the Attentive Health & Wellness platform — biometric screenings, health questionnaires, telehealth check-ins, or other preventive-care touchpoints. These create the medical-event documentation that the plan rests on.
Assurity pays a wellness benefit
Assurity Life Insurance Company underwrites a preventive-care insurance policy that pays out tied to qualifying activities. This is the real underlying insurance contract that gives the plan its legitimacy.
Pre-tax contribution flows through payroll
Under the Section 125 cafeteria plan, a portion of the employee's compensation is redirected pre-tax into the plan. This reduces taxable wages on the W-2 — meaning lower federal income tax, lower FICA (Social Security + Medicare) for both employee and employer, and lower state income tax in most states.
Reimbursement comes back tax-free
Under Section 105, the qualifying medical/wellness reimbursement flows back to the employee tax-free. The participant's actual net pay typically increases — they've shifted dollars from 'taxable wages' to 'tax-free benefit' without losing economic value.
Employer captures the FICA savings
Because participating employees' taxable wages are lower, the employer's portion of FICA (7.65% of wages on Social Security + Medicare) drops too. This is the employer's primary benefit — typically the savings exceed the plan administration cost from the first month onward.
The math (rough rules of thumb)
Every business is different. Specific savings depend on payroll size, employee participation rate, and how the plan is structured. But the typical rules of thumb look like this:
$500-$700
Employer FICA savings per participating employee per year
Roughly. Tied to wage levels and participation rate.
$50-$150
Increase in employee monthly net take-home pay
After-tax. Real money in their pocket each pay cycle.
100%
Tax-free treatment of qualifying reimbursements
Under Section 105 — established IRS code, not a loophole.
To put it in concrete terms: a business with 20 participating employees can typically generate $10,000–$14,000 per year in employer FICA savings, while delivering each of those employees roughly $600–$1,800 per year in increased take-home pay. The numbers scale linearly — a 50-employee business sees roughly 2.5× those figures. We'll model your specific scenario in a free analysis.
Who this fits — and who it doesn't
Good fits
- ✓Businesses with 5+ W-2 employees
- ✓Profitable small/medium businesses (10-500 employees)
- ✓Companies with stable employee base (low turnover)
- ✓Owners who want to add a real wellness benefit without major cost
- ✓S-Corps where the owner is on W-2 payroll
- ✓Industries with consistent payroll (professional services, healthcare, trades, retail with stable staff)
Doesn't fit
- ×Sole proprietors with no W-2 employees
- ×Single-member LLCs (you need participants beyond yourself)
- ×Businesses unwilling to maintain proper plan documents annually
- ×Companies where most employees are 1099 contractors
- ×Operations with high turnover that would disqualify participation
- ×Owners looking for a shortcut — this requires proper administration
The vendors we work with
A SIMRP only works if every piece is compliant. We don't design plans in-house — we work with vendors that have a track record of audit-tested plan structures, transparent administration, and real underlying insurance contracts.
Plan Administrator
Attentive Health & Wellness
Third-party administrator (TPA) handling plan documents, participation tracking, the wellness platform (biometric screenings, telehealth, health questionnaires), non-discrimination testing, and payroll integration. Their compliance infrastructure is the reason these plans hold up under audit.
Supplemental Carrier
Assurity Life Insurance
Underwriter of the preventive-care insurance policy that gives the plan its underlying insurance contract. Assurity is a mutual insurer with A.M. Best ratings in good standing and decades of experience in supplemental health markets. Having a real, rated carrier behind the policy is one of the audit-protection cornerstones.
What setup looks like
Free preliminary analysis (week 1)
We collect your payroll roster (anonymized), employee count, and benefit profile. Run the math on expected employer FICA savings + employee net-pay change. You see the numbers before committing.
Plan document drafting (weeks 2-3)
Attentive drafts the Section 125 cafeteria plan document, the Section 105 reimbursement plan, and the participation enrollment forms. You review and sign. Everything is structured to meet IRS requirements.
Employee enrollment + education (weeks 3-4)
Attentive runs employee education sessions explaining the plan. Participation is voluntary. Employees enroll in the wellness program and elect to participate in the cafeteria plan. Onboarding is handled by Attentive — not you.
Payroll integration + first pay cycle (week 4-6)
Plan goes live with your payroll provider. Pre-tax deductions flow correctly. Wellness reimbursements flow back tax-free. FICA savings show up on the employer's payroll reports starting the first pay cycle after implementation.
Annual compliance (ongoing)
Attentive handles non-discrimination testing each plan year, updates the plan document for any regulatory changes, and maintains the records needed for audit defense if it ever comes up. You don't manage compliance — that's their job.
The audit conversation — what to know
You may have heard that the IRS has gone after SIMRPs. That's partially true — but the context matters. Over the past several years, the IRS has aggressively challenged plans that didn't have a real underlying insurance product, where the "wellness activity" was nominal or non-existent, and where the math didn't reflect actual qualifying medical expenses. Those plans got unwound, and rightly so.
Plans that meet the structural test — actual insurance from a rated carrier, real qualifying wellness activity, proper documentation, annual testing — survive audits when challenged. The combination of Attentive's administration and Assurity's underlying insurance gives us a compliance backbone that holds up to scrutiny.
Our recommendation: don't do this with a TPA or carrier you don't trust. The savings only matter if the plan holds up. If you're reading marketing materials that promise massive savings with vague compliance language, walk away. The plans that work are the ones with verifiable structure — and that's what we offer.
Common questions
Is a SIMRP legal? I've heard the IRS scrutinizes these.+
Yes — when properly structured. Section 105 (medical reimbursement) and Section 125 (cafeteria plans) are both established sections of the Internal Revenue Code. The IRS has audited and challenged poorly-structured plans where there was no actual underlying insurance product, no real wellness activity, or where the math didn't add up to a legitimate benefit. The plans we work with — administered by Attentive and underwritten by Assurity — meet all the structural requirements that hold up under scrutiny: an actual insurance contract, qualifying medical activity, proper plan documents, and non-discrimination testing.
What's the difference between Section 105 and Section 125?+
Section 125 is the 'cafeteria plan' code section — it lets employees pay for certain benefits (health premiums, FSA contributions, HSA contributions) with pre-tax dollars before income tax and FICA are withheld. Section 105 lets an employer reimburse employees for qualifying medical expenses tax-free. A SIMRP combines both: employees pay into the plan pre-tax (Section 125), and the plan reimburses qualifying medical/wellness expenses tax-free (Section 105). Both code sections have been on the books for decades.
What does it cost the business to set this up?+
Plan setup and ongoing administration is handled by Attentive Health & Wellness as the TPA (third-party administrator). The Assurity policy itself has a premium structure tied to the wellness benefits delivered. For most businesses with 5+ W-2 employees, the employer FICA savings cover the plan costs by a wide margin — and the after-tax economics work in the employer's favor from day one. We'll model the specific numbers for your business in a free analysis.
Who actually qualifies?+
Generally: businesses with W-2 employees (5+ is the typical threshold for the math to work cleanly), employees actively participating in qualifying wellness activities, and a properly-drafted plan document. Sole proprietors with no other employees don't qualify — the plan needs more than one participant. S-Corp owners can participate but with specific rules around how owner-employees are treated. Some industries and ownership structures don't fit — we screen for fit in the first consultation.
What happens during a wellness check?+
Participants engage with the wellness program through Attentive's platform — typically biometric screenings, health questionnaires, telehealth check-ins, or other preventive care activities. Assurity's preventive care insurance pays out reimbursements tied to those qualifying activities. Those reimbursements flow through payroll as tax-favored amounts under Section 105. The participant gets a real wellness benefit AND a tax outcome.
Does this replace our existing health insurance?+
No. The SIMRP is a SUPPLEMENT, not a replacement. Your existing major medical health insurance (group plan, marketplace, individual coverage, Medicare) stays in place. The SIMRP adds a layer of preventive-care benefits and tax-favored treatment alongside whatever health coverage your employees already have.
What if we're audited?+
Properly-structured SIMRPs hold up under audit because they meet all the technical requirements: actual insurance contract (Assurity), real wellness activities (Attentive's program), proper plan documents (Section 125 cafeteria plan document on file), non-discrimination testing (run annually), and W-2 reporting where required. The plans that get unwound in audit are the ones missing one or more of these pieces. We work with vendors specifically because they get the compliance side right.
What about employees who don't want to participate?+
Participation is voluntary. Employees can opt out. The plan is structured so participating employees benefit and non-participating employees are not penalized. Non-discrimination testing makes sure highly-compensated employees aren't disproportionately favored. We design the plan so the participation rate that makes sense for your business is achievable.
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ReadFree SIMRP feasibility analysis
Share your employee count and rough payroll size. We'll model the expected employer FICA savings and the average per-employee take-home increase — all before you decide whether the plan fits.
Educational content only. Not tax, legal, or financial advice. SIMRP structure, tax outcomes, and compliance requirements depend on individual business circumstances. Specific tax savings vary. Always confirm specifics with a licensed CPA and plan administrator before implementing. Attentive Health & Wellness and Assurity Life are independent vendors; Ten Point Financial Group is not affiliated with either except as a referring agency.