In looking into establishing a Flex Spending program for our company, I was informed that the company owner nor his family can participate because the company is established as a S Corp and "otherwise" already has the benefits of the Flex account. How is this? and how can he excercise these benefits to pay for medical expenses (pre-tax) not covered under the our health insurance? Thanks

More than 2% stockholders of Sub S corporations can not participate in a Section 125 plan. Also their spouses and children are not allowed to participate even though they are employees themselves because of the attribution rules contained in Code section 318.

OK....how about an IRC Section 105 medical reimbursement plan?

(The company pays in full for all employee's health, dental, life, and disability insurance). We are simply seeking a means to allow employees (including the S-corp owner's spouse) to use pre-tax dollars to pay for medical expenses not covered by the health insurance (orthodontia, miscellaneous vision costs, etc.)

Thanks...

Then those expenses are treated similarly to health insurance premiums paid by the S-corp for more than 2% shareholders. The benefits paid are deducted by the S-Corp, but also added on to the owners W-2 as compensation.

In the casse of health insurance (but not medical reimbursement payments) the shareholder can deduct a portion of the premiums as a self-employed health insurance deduction on their personal returns.