IRC §125
Provides the cafeteria-plan framework that allows qualifying employee payroll contributions to be made on a pre-tax basis.
Official IRS referenceIRS Publication 15-B — Cafeteria Plans ↗
Compliance & Structure
SIMRP Compliance: Grounded in IRS Code. Administered with Precision and Oversight.
The Self-Insured Medical Reimbursement Program (SIMRP) is structured around applicable federal tax and employee-benefit provisions. Employers should review the program’s actual plan documents, administrative procedures and proposed payroll treatment with their independent advisers.
Statutory Basis
The IRC sections SIMRP is built on
SIMRP combines several long-standing provisions of the Internal Revenue Code together with ERISA, HIPAA, ADA, and Affordable Care Act rules. Each section serves a different role in the program's tax and benefit structure.
IRC §105(b)
Allows qualifying employer reimbursements for medical care to be excluded from an employee's gross income when the applicable requirements are met.
IRC §213(d)
Defines qualifying medical care. The medical benefits used in the SIMRP structure are tied to services intended to fall within this definition.
Official IRS referenceIRS Publication 502 — Qualified Medical Expenses ↗
IRC §106(a)
Addresses the exclusion from gross income for qualifying employer-provided accident and health coverage.
Official IRS referenceIRS Publication 15-B — Accident & Health Benefits ↗
IRC §104(a)(3) & Treas. Reg. 1.105-11(i)
Part of the federal framework governing accident-and-health reimbursements and self-insured medical reimbursement plans.
42 U.S.C. §300gg-4(j)(2)
The ACA participatory-wellness provision that permits defined benefits without requiring employees to achieve a particular health outcome.
Official U.S. Code reference42 U.S.C. §300gg-4 — Participatory wellness ↗
Additional federal framework: the program is also administered with ERISA employee-benefit rules, HIPAA privacy and portability requirements, ADA nondiscrimination requirements, and applicable Affordable Care Act provisions in view.
Program Structure
How SIMRP is structured
The plan is built around defined medical benefits rather than unrestricted cash. That distinction is central to the program's intended tax treatment.
Grounded in §105(b)
Qualifying reimbursements are tied to §213(d) medical care. Under the governing plan documents, the qualifying nature of the benefits is maintained at the plan level rather than through routine individual receipts for every included service.
Participatory wellness framework
The program is designed under 42 U.S.C. §300gg-4(j)(2), allowing defined benefits without requiring employees to meet a specific health outcome.
The WIMPER model
The Wellness Incentive Medical Plan with Employer Reimbursement pairs a §125 pre-tax salary reduction with a §105(b) non-taxable medical-reimbursement framework. Premium treatment and medical reimbursement are separated to avoid a double exclusion.
Differentiation
How SIMRP differs from arrangements the IRS has scrutinized
The IRS and Department of Labor have warned about benefit designs that can create unintended tax liabilities. Similar terminology can describe very different mechanics, so employers should understand how the SIMRP structure is intended to differ.
1. Circular payments / wage recharacterization
What the IRS has flagged
Programs that reduce wages pre-tax and then return substantially the same amounts after tax without a genuine connection to qualifying medical expenses can be treated as taxable compensation.
How SIMRP is structured differently
The reimbursement component is tied to defined §213(d) medical benefits and is intended to operate as a §105(b) medical reimbursement rather than as unrestricted cash.
2. Fixed-indemnity / wellness-indemnity cash payments
What the IRS has flagged
IRS Chief Counsel Advice 202323006 addressed certain fixed-indemnity or wellness-indemnity payments made without regard to actual medical expense and concluded the payments described there were taxable wages.
How SIMRP is structured differently
The program does not rely on unrestricted cash stipends, fixed-indemnity payouts, or wellness-event cash bonuses. The reimbursement structure is tied to defined qualifying medical benefits.
3. Double dipping — excluding the same dollars twice
What the IRS has flagged
Arrangements that reimburse amounts already receiving pre-tax treatment can create an impermissible second tax exclusion.
How SIMRP is structured differently
The §125 and §105(b) components are designed to serve separate functions, and the program does not reimburse pre-tax premiums again.
No unrestricted cash stipends
No reimbursement of pre-tax premiums
Defined §213(d) medical benefits
§105(b) + ACA wellness framework
IRS guidance and ongoing review: the program is designed to avoid the wage-recharacterization, fixed-indemnity, and double-dip concerns that have drawn IRS attention. Because the regulatory environment continues to evolve, employers should review the program documents with their own tax and legal advisers before implementation.
Independent Professional Review
Independent tax and legal review
Current program materials state that the tax and legal structure has been reviewed by a national accounting firm and a national law firm. Written opinion materials are made available to qualifying prospective employers under a mutual NDA during the discovery process.
These materials support employer diligence but do not replace the employer's own tax or legal advice.
Administration and Oversight
Program Administration & Employer Responsibilities
GoRhoades coordinates the employer relationship. IronGate Business Advisors provides program administration services as defined in the governing agreements. Participating employers remain responsible for their own adoption decisions, payroll coordination, required records and professional review.
Program administrator tasks
- Plan documents and administration
- Employee eligibility determinations
- Plan-level substantiation of qualifying §213(d) benefits
- Coordination with licensed third-party providers
- Carrier-issued products such as whole life and MEC
- Monthly reconciliation and care-navigation support
Employer obligations
- Make its own adoption decisions
- Run payroll using the approved configuration
- Follow the adopted plan documents
- Provide workforce and payroll data
- Maintain required records
- Coordinate with its payroll provider and independent advisers
Pre-Implementation Review
The eligibility review
Before implementation, a workforce and payroll review identifies potentially eligible employees and prepares an employer-specific analysis for review. Eligibility and participation remain subject to the governing plan documents.
Typical eligibility criteria
- Average 30+ hours per week
- At least approximately $26,000 in annual W-2 wages
- 2%+ owners excluded under the applicable criteria
- Employees enrolled in Medicaid are not eligible
- Eligible employees documented before payroll deductions begin
Employer receives
- Projected employer savings
- Eligible headcount
- Flagged exceptions
- A written proposal before commitment
Frequently Asked Questions
Common questions from employers, CFOs, and CPAs
FICA Reduction & Program Structure
How does the program generate employer FICA savings?
A fixed pre-tax deduction lowers participating employees' taxable wages. The 7.65% FICA rate does not change; it is applied to a lower qualifying taxable wage base.
Where did the program framework come from?
The framework combines established federal benefit rules, including §125 cafeteria-plan rules, medical-reimbursement provisions, HIPAA-related healthcare rules, and applicable Affordable Care Act provisions.
Is the program designed to comply with IRS and ACA regulations?
The program is represented as designed under IRC §125, §104(a)(3), §105(b), §106(a), §213(d), Treas. Reg. 1.105-11(i), ERISA, HIPAA, ADA, and the ACA participatory-wellness framework. Documentation and administration are handled through third-party providers.
Does this replace existing major medical?
No. The program is designed to stack alongside existing major medical coverage. Employees keep their current plan. Where applicable, the program materials describe an included MEC component for employees without major medical coverage.
Who is eligible?
Current criteria generally include approximately $26,000+ in annual W-2 wages and an average of 30+ hours per week. Medicaid participants are not eligible, and 2%+ owners are excluded under the applicable criteria.
Is there an added out-of-pocket cost?
Current program materials describe the program as funded through the pre-tax structure, with no administrative fee charged against the employer's savings. Final treatment depends on the implementation and plan terms.
What does implementation look like?
Discovery and eligibility review are followed by implementation and payroll setup, then guided employee onboarding. Once implementation is underway, setup typically takes about 2–3 weeks. The full process, from Discovery to first payroll, may take approximately 4–6 weeks, depending on employer responsiveness and documentation.
Common Employee Questions
Does this affect my paycheck?
Program illustrations generally show take-home pay remaining similar and in some cases increasing modestly because of residual tax savings. Individual results can vary.
Does it replace my current insurance?
No. It is designed to work alongside existing coverage.
Do I need to fill out forms?
Eligible employees are generally enrolled through the employer's process and access routine benefits through the program platform or by phone.
How many family members can I add?
Core telehealth and prescription benefits may extend to the enrolled employee plus up to seven additional enrolled household members. Certain employee-only benefits do not automatically extend to dependents.
Are there copays or fees?
Current materials describe included virtual-care and qualifying prescription benefits as available without additional copays or out-of-pocket fees, subject to plan terms.
Is my health information shared with my employer?
Medical details are intended to remain confidential under applicable privacy rules. Employers receive only the participation information required for administration.
Does this affect my HSA or FSA?
Employees with HSAs or FSAs should follow employer and program enrollment guidance so individual eligibility and enrollment are handled correctly.
What happens if I leave the company?
Participation in the employer plan ends when employment ends. Separately issued portable life-insurance coverage is governed by its policy terms.
Can I use the benefits while traveling?
Virtual-care and qualifying prescription services are described as available throughout the United States, subject to provider and program availability.
Am I required to participate?
Participation is voluntary under the program materials. Employees who do not want to participate should follow the applicable opt-out process.
Before You Implement
Recommended steps for prospective employers
1Discovery
Bring GoRhoades together with the employer's decision-makers and ask the initial questions.
2Payroll Data
Submit the requested payroll information for an eligibility and savings review.
3Adviser Review
Review the proposal and plan documents with counsel, CPA, or other tax adviser.
4Payroll Fit
Confirm operational fit and implementation requirements with the payroll provider.
5Decision
Proceed only after the employer is comfortable with the economics, documents, and operational responsibilities.
Bring Your Tax Adviser
Compliance questions are best reviewed with everyone in the room.
GoRhoades can coordinate a discovery conversation with the program administrator, the employer's CFO, CPA, legal counsel, and payroll team so everyone can review the same structure and documentation together.