Salary Reduction Arrangement (Section 125 Pre-Tax ICHRA)

Salary Reduction Arrangement: Pre-Tax Premium Reimbursement via Section 125

A Salary Reduction Arrangement allows employees to pay any portion of their individual health insurance premium that exceeds their employer's tax-free ICHRA allowance using pre-tax payroll deductions through an IRC Section 125 Cafeteria Plan.

Off-Exchange vs. On-Exchange Statutory Rules

• Off-Exchange Policies (Allowed Pre-Tax): Under federal regulations, employees purchasing individual coverage directly from carriers outside public exchanges may utilize pre-tax salary reductions for excess premium amounts.
• On-Exchange Policies (Public Exchanges): Section 125(f)(3) prohibits pre-tax salary deductions for qualified health plans purchased on public exchanges (Healthcare.gov or state exchanges) if the employer operates a cafeteria plan.

How SimplyHRA Automates Payroll Integration

SimplyHRA syncs seamlessly with payroll providers like Gusto, Rippling, and QuickBooks to automate salary reduction calculations. The platform generates monthly payroll reconciliation reports showing the exact pre-tax and post-tax employee deductions, eliminating administrative overhead and ensuring audit-proof Section 125 compliance.