Which of the following is INELIGIBLE to participate in a Section 125 Plan?

A Section 125 Plan, also known as a Cafeteria Plan, allows employees to choose from a variety of pre-tax benefits, such as health insurance or flexible spending accounts. However, certain individuals are considered ineligible to participate in these plans based on IRS regulations.

An S-Corp owner who owns more than 2% of the company is not eligible to participate in a Section 125 Plan. This is primarily because the IRS views these owners as self-employed individuals rather than employees. The rationale behind this rule is to prevent self-employed owners from taking advantage of certain tax benefits offered through a cafeteria plan that are intended for employees. Therefore, since the owners have a significant stake in the business, they do not qualify for the same benefits that regular employees receive.

In contrast, full-time employees, part-time employees, and dependents of employees can generally participate in a Section 125 Plan, depending on the specific provisions set forth by the employer. Full-time employees typically meet the eligibility requirements for benefits under such a plan, part-time employees may be included if the employer allows them to participate, and dependents are often eligible for coverage under certain benefits offered within these plans.