Section 105(b) and the wellness reimbursement double-dip

No expense, no reimbursement.
Under §105(b), the threshold question is: what expense is being reimbursed?
If the “substantiation” is an engagement action, you’re substantiating something other than incurred medical care.

SIMERP published a response to my posts this week. It cites real statutes and real regulations. The problem isn’t what it cited. It’s what it didn’t address: there’s no such thing as a reimbursement when there is no expense.

Let me separate what’s legitimate from what isn’t.

The problem isn’t employers providing medical care. §106 covers that.

The problem isn’t pre-tax contributions through §125 cafeteria plans. Those are legitimate.

The problem isn’t tax-free reimbursements for medical expenses. §105(b) allows them.

The problem is that SIMERP, like the other structures I’ve analyzed this week, “reimburses” employees who haven’t incurred an expense.

§105(b) excludes from income amounts “to reimburse the employee for expenses incurred by him for the medical care.” Treas. Reg. §1.105-2 denies the exclusion for payments made “irrespective of whether or not he incurs expenses for medical care.”
SIMERP’s own FAQ describes the structure.

On the reimbursement amount, the SIMERP FAQ states that SIMERP satisfies nondiscrimination through “uniform benefits (same $14,460 annual amount for all participants).” Every participant gets the same figure.

On how the amount is set, the FAQ states the reimbursement is the “actuarially-determined fair market value” of the service bundle, calculated using methodology that accepts professional valuations “regardless of individual actual costs.” Actuarial value of access, not individual employee utilization.

On the substantiation standard, the FAQ compares SIMERP to “subscription services” that “provide ongoing value regardless of usage frequency.” Annual engagement is sufficient. If the employee fails the annual engagement, the FAQ says “the system automatically adds the $14,460 annual reimbursement to their taxable income through W-2 correction.”

Complete one annual engagement action, $14,460 is tax-free. Skip it, $14,460 is wages. The payment is the same either way.

Employees do not incur a $14,460 medical expense by clicking through an annual engagement. Without an incurred expense, there is no reimbursement. There is only a payment.

A W-2 correction triggered by failure to substantiate an actual expense is standard §105(b) compliance. A W-2 correction triggered by failure to complete an engagement action is substantiating something else.

That’s not a reimbursement of an expense.
There must be an expense to have a reimbursement. SIMERP’s own FAQ describes what’s being reimbursed, and it isn’t that.

My earlier analysis of the pattern, with citations: https://lnkd.in/eNTpMdcr