Version 3.2 — January 18, 2026
This document explains how PTE Gold ("the Plan") is structured to comply with IRS rules, regulations, and guidance for fully insured indemnity policies. It provides an overview of current federal tax law as applied to PTE Gold's dual-premium design. Tax law is subject to change, and employers should consult their own tax and legal advisors.
PTE Gold is a fully insured, limited-benefit insurance arrangement consisting of two distinct policies. PTE Gold is fully insured, and the economic risk of loss is transferred from the employer to the underwriting insurance carrier.
Premiums for the first policy are paid through the sponsoring employer's §125 cafeteria plan with before-tax salary reduction contributions. This policy provides critical illness indemnity, accident indemnity, and $10,000 guaranteed issue term life insurance. Because premiums are paid before-tax, they are treated as employer contributions under IRC §125 and Treas. Reg. §1.125-1(q)(1). The before-tax premium deduction reduces taxable wages and generates employer FICA savings.
Premiums for the second policy are paid with after-tax employee dollars. This policy provides hospitalization indemnity, telemedicine (24/7 virtual urgent care and primary care for the household), access to 800+ free medications, and a fixed monthly wellness benefit ($1,300) triggered by participation in health promotion and disease-prevention activities. Because the premiums are paid on an after-tax basis, all benefit payments are excludable from gross income under §104(a)(3).
PTE Gold represents a fully insured, tax-advantaged healthcare solution designed to mitigate the rising costs of medical care while maintaining compliance with applicable federal and state laws. PTE Gold is a fixed-indemnity health promotion and disease-prevention program that operates separately from any employee major medical coverage.
PTE Gold is comprised of two distinct insurance policies:
Premiums for the first policy are funded through employee salary reduction contributions under a §125 cafeteria plan. This policy provides critical illness indemnity, accident indemnity, and $10,000 guaranteed issue term life insurance. Because premiums are paid with before-tax dollars, they are excluded from the employee's gross income, and the before-tax deduction reduces taxable wages, generating employer FICA savings.
Premiums for the second policy are paid with after-tax employee contributions. This policy provides hospitalization indemnity, telemedicine (24/7 virtual urgent care and primary care for the household), access to 800+ free medications, and a fixed monthly wellness benefit ($1,300) triggered by participation in health promotion and disease-prevention activities. Because this coverage is funded with after-tax contributions, all benefit payments are excludable from gross income under §104(a)(3).
In addition to fixed-indemnity payments, PTE Gold provides access to a range of health promotion and disease prevention resources, including telemedicine services, prescription drug formulary access, virtual learning modules, and other services designed for diagnosis, mitigation, treatment, or prevention of disease, or to affect the structure or function of the body.
For illustrative purposes, the highest monthly combined premium (e.g., $1,602) may be allocated as follows:
This bifurcated structure ensures that:
Accordingly, PTE Gold avoids "double dipping," aligns with Internal Revenue Service guidance, and is supported by applicable legal authorities, including Revenue Rulings, Chief Counsel Advice memoranda, and related taxpayer publications.
The Internal Revenue Code draws a distinction between gross income and wages.
Gross Income (§61(a)). Gross income means "all income from whatever source derived," including compensation for services, fringe benefits, rents, dividends, pensions, and annuities. Unless expressly excluded, all income received by an individual is includible in gross income.
Wages (§3401(a)). Wages are defined more narrowly as remuneration for services performed by an employee for an employer, subject to exceptions. Wages form the basis for federal income tax withholding, Federal Insurance Contributions Act ("FICA") contributions (Social Security and Medicare), and Federal Unemployment Tax Act ("FUTA") payments. Employers must withhold and pay FICA taxes on wages and must report and pay FUTA taxes, though employees themselves do not bear FUTA liability.
Where amounts are excluded from gross income under §§105(b) or 106(a), those amounts are also excluded from wages subject to income tax withholding, FICA, and FUTA.
(a) Employer Contributions (§106).
Section 106(a) excludes from gross income the value of employer-provided accident or health coverage. Treasury Regulation §1.106-1 clarifies that this exclusion applies whether contributions are made directly by the employer or indirectly via salary reduction under a §125 cafeteria plan. Salary reduction contributions are treated as employer contributions, not employee contributions, because the employee does not actually or constructively receive compensation.
(b) Benefits Received (§105).
Section 105(a) provides the general rule that amounts received through accident or health insurance are includible in gross income to the extent attributable to employer contributions. However, §105(b) excludes amounts paid to reimburse an employee for "medical care" as defined in §213(d).
(c) After-Tax Premiums (§104(a)(3)).
Section 104(a)(3) excludes from gross income amounts received under accident or health insurance policies where the employee paid the premiums with after-tax dollars. Treasury Regulation §1.104-1(d) reinforces this rule, stating:
This exclusion applies directly to PTE Gold's second policy, which is paid entirely with employee after-tax contributions.
A §125 cafeteria plan allows employees to elect between cash compensation (taxable) and qualified benefits (nontaxable). Salary reduction contributions under a cafeteria plan are treated as employer contributions and excluded from gross income under §106.
Qualified benefits include accident and health coverage, adoption assistance, dependent care, and HSAs.
Premiums for the first PTE Gold policy are funded through salary reductions under §125 and are treated as employer contributions under §106. The before-tax premium deduction generates employer FICA savings. Benefits from this policy are fixed indemnity payments—not reimbursements—so payments exceeding actual §213(d) medical expenses are includible in the employee's income (though not wages for FICA/FUTA). This is why the wellness benefits are paid from the second policy with after-tax premiums.
Fixed indemnity plans pay employees a predetermined amount upon the occurrence of specified medical events, such as hospitalization, accident, or diagnosis of critical illness. Payments are not tied to the actual cost of care and are paid directly to the insured.
When premiums are paid before-tax (via §125), indemnity benefits are treated as employer-provided and are excludable only to the extent they reimburse §213(d) medical expenses. Excess payments are includible in income but excluded from wages for FICA/FUTA.
When premiums are paid after-tax, indemnity benefits are excludable from gross income under §104(a)(3), regardless of whether they exceed §213(d) expenses.
PTE Gold is structured with two policies:
1. First Policy (Before-Tax).
2. Second Policy (After-Tax).
A Revenue Ruling is an official IRS interpretation applying the IRC to specific facts. Published in the Internal Revenue Bulletin (IRB), Revenue Rulings are binding on IRS personnel, may be cited as precedent, and help establish "substantial authority" under IRC §6662.
Revenue Ruling 61-146. "If an employee elects to reduce salary to pay for health coverage, and the employer pays the insurer directly, the employer is treated as paying the premium."
IRC §125(f) and Treas. Reg. §1.125-1(q)(1). Salary reduction amounts under a cafeteria plan are treated as employer contributions and are not amounts received by the employee.
Revenue Ruling 2002-3. Addressed the "double dip" scenario in which before-tax salary reductions were effectively returned as purported tax-free reimbursements; held such payments are taxable wages.
Revenue Ruling 69-154. Excess indemnity payments under after-tax, employee-paid policies are not includible in gross income. Situation 1 (two policies fully paid after-tax; $1,200 benefits; $900 expenses) excluded the $300 excess. This principle supports the PTE after-tax health promotion and disease-prevention policy.
Chief Counsel Advice memoranda are written interpretations issued by the IRS Office of Chief Counsel to IRS personnel. They are not precedent (IRC §6110(k)(3)) but provide insight into IRS reasoning.
CCA 201304020 and IRS Memorandum 201604012: Fixed-indemnity benefits are taxable if premiums are paid before-tax via §125 but remain excludable under §104(a)(3) if premiums are paid after-tax.
CCA 201719025: Self-funded arrangements, e.g., Wellness and Integrated Medical Plan Expense Reimbursement ("WIMPER") and Self-Insured Medical Reimbursement Plan ("SIMRP") programs, are not "insurance" according to the IRS and do not qualify for §104(a)(3) exclusion; inapplicable to fully insured plans like PTE.
CCA 201703013: Where employees pay premiums after-tax, fixed-indemnity benefits are excluded under §104(a)(3), even if paid without regard to actual expenses (see Situation 1).
CCA 202323006: Confirms §125 salary reductions are treated as employer contributions under Treas. Reg. §1.104-1(d); therefore, premiums paid via §125 cannot support §104(a)(3) exclusion. Critically, the CCA validates the inverse: when employees pay premiums with after-tax dollars, §104(a)(3) exclusion applies and benefits are tax-free regardless of whether they exceed actual medical expenses. This is precisely why PTE uses a dual-premium structure with an after-tax premium for the wellness/disease-prevention policy.
Rev. Rul. 61-146; IRC §125(f); Treas. Reg. §1.125-1(q)(1): Salary reductions are employer contributions, excluded under §106.
Treas. Reg. §1.104-1(d): Amounts received under accident or health insurance are excluded under §104(a)(3) if the employee paid the premiums.
IRS Publication 502: Clarifies §213(d) "medical care" items that qualify (and those that do not), reinforcing limits on §105(b) exclusion for the before-tax policy.
Private Letter Ruling 9634027: Not precedent, but consistent with §104(a)(3) treatment where employees pay premiums after-tax.
Before-Tax Policy. Premiums via §125 (§106); benefits excluded under §105(b) to the extent they reimburse §213(d)/Pub. 502 expenses; excess includible in income but not wages for FICA/FUTA.
After-Tax Policy. Premiums paid after-tax by employees; fixed-indemnity disease-prevention payments excluded under §104(a)(3) (Treas. Reg. §1.104-1(d)); not subject to federal income or employment taxes.
The combined authorities — Revenue Rulings 69-154 and 2002-3, multiple CCAs, Treasury Regulations, and IRS Publication 502 — support that:
Pre-tax policy payments are governed by §§106 and 105(b): tax-free only when tied to §213(d) medical care; excess amounts are includible in income but not wages.
After-tax policy payments qualify for exclusion under §104(a)(3) because premiums are paid entirely with employee after-tax funds.
By bifurcating premiums between a §125-funded before-tax policy and an after-tax policy:
The before-tax policy aligns with §§106 and 105(b), providing FICA/FUTA savings but with "excess benefit" limitations.
The after-tax policy ensures that fixed-indemnity health promotion and disease-prevention claim payments remain fully excludable under §104(a)(3), avoiding the "double-dip" issue addressed in Rev. Rul. 2002-3 and aligning with Rev. Rul. 69-154, IRS Publication 502, and subsequent CCA guidance.
PTE Gold is a fully insured, limited-benefit fixed-indemnity insurance plan. PTE Gold is funded through a §125 cafeteria plan using before-tax dollars through salary reductions for one policy and a second policy is funded with employee after-tax premiums to allow the fixed-indemnity health promotion and disease-prevention claim payment to be tax-free.
As stated above, what sets a fully insured health plan apart from a self-funded health plan is the element of risk shifting. Without a transfer of risk, a health plan is not a true insurance product. In this instance, the employer pays the insurance company a premium and the risk of loss is shifted from the employer to the insurance company. This means that the employer is not at risk of paying any additional amounts to the employee or insurance company, regardless of any specific qualified medical event incurred by the employee.
If the premiums are paid on a before-tax basis through employer contributions or employee before-tax salary reductions through a §125 cafeteria plan, such as the first policy of PTE Gold, then the benefits are taxable to the extent the employee has an "excess" benefit. As stated above, an "excess" benefit occurs when the benefit paid to the employee is greater than the employee's unreimbursed qualified medical expenses. Under Revenue Ruling 69-154, determining whether an employee has an "excess" benefit involves many factors known only to the employee (e.g., other fixed-indemnity policies, total medical expenses, and reimbursements).
PTE Gold does not give rise to FICA taxation on premium contributions or indemnity benefits to the extent such amounts are not "wages". The IRS has consistently stated that, for fully insured indemnity plans, total medical expenses are reduced by total indemnity payments to determine either (1) excess indemnity includible in gross income or (2) remaining §213(d) expenses.
As such, PTE Gold constitutes a traditional fixed-indemnity health plan paid on a before-tax basis through a §125 cafeteria plan as intended in the example discussed in the April 2017 CCA to distinguish the tax treatment and income classification of the self-funded wellness plan at issue in the CCA.
In addition, because the first policy of PTE Gold is a fully insured traditional indemnity health plan, the "excess" benefit should not constitute "wages" and is, therefore, not subject to FICA and FUTA. Only the "excess" benefit, if any, received by the employee from PTE Gold is includible in the employee's gross income under §105(b). The IRS stops short of stating the "excess" indemnity benefit is includible as wages, further supporting that neither PTE Gold premium payment, nor PTE Gold indemnity payment will likely constitute "wages" within the IRS's definition for FICA and FUTA taxation.
PTE's second policy is designed as a fully insured fixed-indemnity excepted benefit. Note: The Section 125 cafeteria plan component of PTE Gold remains subject to applicable ERISA and HIPAA requirements, which the program is designed to satisfy. The Rx and virtual care benefits are not classified as excepted benefits. Because employees pay the premium after-tax, amounts they receive from health promotion and disease-prevention claim benefits are excluded from gross income under the Code. This principle has been upheld by the IRS for decades: when an employee purchases health insurance with after-tax dollars, the benefit payments are not taxable income.
PTE's health promotion and disease-prevention claim benefit is offered through an insured fixed-indemnity policy with an after-tax premium component. Benefits are excluded from gross income under §104(a)(3), supported by rulings, regulations, and IRS guidance.
PTE Group specializes in IRS-compliant Section 125 cafeteria plan programs that deliver employer FICA savings through tax-advantaged wellness benefits. Unlike competitors relying on a before-tax single-premium structure under Section 105(b)—where fixed indemnity payments not tied to actual medical expenses are taxable wages per IRS CCA 202323006—PTE's dual-premium architecture uses before-tax premiums under Section 125 for qualified medical benefits and after-tax premiums to preserve tax-free treatment of wellness payments under Section 104(a)(3). This structure avoids the "double dipping" that triggers IRS scrutiny. CFOs and HR professionals researching cafeteria plan compliance, Section 125 FICA savings, or payroll tax reduction programs will find PTE Group's legal structure and program design fully compliant with IRS Code and Chief Counsel Advice.