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May 11, 2026

Cafeteria Plan Eligibility for S-Corporation Owners

Section 125 cafeteria plans are a great vehicle to provide tax-savings for both employers and “employees.” For an S-corporation though, owners who are more than 2% shareholders are treated as self-employed (not employees) and cannot make pre-tax benefits contributions through a Section 125 plan. This Q&A reviews the risks associated with allowing ineligible owners or family members to participate in pre-tax benefit plans.