Understanding the Legal Foundation of SIMERP

The Internal Revenue Code (IRC) is the body of federal tax laws written by Congress. It’s organized as Title 26 of the U.S. Code and enforced by the IRS (Internal Revenue Service). Every tax-advantaged benefit offered by employers—from 401(k)s to health plans—comes from specific IRC sections.

• Allows employees to receive tax-free reimbursements for qualifying medical expenses under an employer-funded health plan.
• Reimbursements must be for expenses defined in IRC §213(d).
• Commonly used in Health Reimbursement Arrangements (HRAs) and SIMERPs.
• Why It Matters: This section ensures that when the employer reimburses an employee for medical expenses, it’s not counted as taxable income.

• Permits employer-paid health insurance premiums to be excluded from employee income.
• Covers group health plans, HRAs, and other employer-funded benefits.
• Why It Matters: Contributions to a SIMERP made by the employer are tax-deductible for the employer and tax-free for the employee.

• Allows employees to choose between taxable wages and non-taxable benefits (like insurance premiums or reimbursements) without tax penalties.
• Includes Premium Only Plans (POPs) and Flexible Spending Accounts (FSAs). 
• Why It Matters: If structured through a Cafeteria Plan, employees can elect benefits pre-tax, reducing their taxable wages and saving FICA and income tax.

• Defines what expenses qualify as medical care for tax-free reimbursement.
• Includes doctor visits, prescriptions, dental, vision, certain OTC items, mental health services, and more.
• Why It Matters: This section determines which expenses are eligible under a SIMERP and ensures compliance with IRS rules.

The § symbol is shorthand for “Section” in legal and tax documents. When you see something like §105, it simply means "Section 105" of the Internal Revenue Code.

• § = Section
• §§ = Multiple Sections (e.g., §§105/106/125/213(d))

By properly structuring your SIMERP to align with these IRC sections:

• Employees receive tax-free medical reimbursements
• Employers save thousands in payroll taxes annually
• Compliance is built directly into the design

This IRS-compliant structure is already in place across thousands of organizations, with adoption spanning Fortune 500 companies, universities, state and local governments, and small businesses nationwide.