Which employees can & can’t participate in the plan?

Any employee meeting the eligibility requirements can participate in a Section 125 plan. However…

Owners: Only owners of a “C” corporation may participate in a Section 125 plan. Sole proprietors, partners within a partnership, owners of an LLC (filing as an S or a partnership), owners of an LLP and more than 2% owners of an S-Corporation are prohibited from participating.

Owners’ Family Members: Rules of attribution apply to S corporations, thus more than 2% owner’s spouses, parents, children and grandchildren may not participate. Family members of C corporations, sole proprietors and partners in a partnership may participate in the plan.