The Compliant Architecture for Section 125 FICA Savings
The dual-premium structure separates pre-tax and after-tax premium funding into two distinct insurance policies—creating a compliant framework that addresses every IRS concern while maximizing employer FICA savings.
This site explains exactly how it works, why the separation matters, and how it differs from the structures the IRS has challenged.
Deducted from gross pay before taxes are calculated. Funds qualified benefits under a Section 125 cafeteria plan.
Tax Treatment: Reduces taxable wages under IRC §3121(a)(5)(G). Employer saves 7.65% FICA on every dollar of premium.
Deducted from net pay after taxes are calculated. Employee pays this premium with after-tax dollars.
Tax Treatment: Benefits excludable under IRC §104(a)(3) because premiums were paid with after-tax dollars.
The IRS has challenged "double dip" structures where employers claim pre-tax premium deductions AND tax-free benefits from the same policy. The dual-premium structure eliminates this concern entirely by using separate policies with separate premium streams.
Pre-tax funding goes to qualified medical benefits. After-tax funding goes to the wellness policy. Each policy stands on its own legal foundation.
The PTE Gold Book provides 200+ pages of detailed guidance on structuring compliant dual-premium programs.
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