Many people are skeptical of Payroll Tax Reduction Programs offered by PTE Group Inc. There are many health and wellness benefits programs offered today and your skepticism is completely understandable and, frankly, it's exactly the response we hope to see from sophisticated CEOs, CFOs, business leaders and attorneys. Most programs that sound "too good to be true" are indeed "troublesome", which is why I want to provide you with detailed information about how Payroll Tax Reduction program offered by PTE Group Inc. works and why it's fundamentally different from the problematic structures you've read about.
Oftentimes someone will do a Google search and discover IRS Chief Counsel Advice Memo 202323006 (June 2023) and raise legitimate questions about whether this is another FICA-reduction scheme where employers could face back taxes, penalties, and interest. I want to address these concerns directly by explaining exactly what the IRS guidance says and how PTE Gold's structure complies with it.
The IRS memo you referenced does identify a compliance problem, but it's specific to programs that use only before-tax premiums under a Section 125/105(b) reimbursement framework. The memo addresses what the IRS calls "double-dipping"—where employees pay premiums entirely with before-tax dollars and then claim the benefits are also tax-free. The IRS has consistently stated this doesn't work.
However, the same IRS Chief Counsel Advice 202323006 that you cited explicitly provides the solution. The memo states: "If the contributions to the fixed indemnity health plan premiums were made with after-tax payments, these are considered tax free reimbursements."
This is precisely how PTE Gold is structured. We use a dual-premium approach with two separate insurance policies from Insurance Companies.
This is a standard Section 125 cafeteria plan, identical to how most employer-sponsored health insurance works. The premium is deducted from the employee's gross pay before taxes, reducing taxable wages. This policy, underwritten by an Insurance Company, covers in part critical illness and accident indemnity and $10,000 guaranteed issue term life insurance. This mechanism has been law since 1978 under Internal Revenue Code Section 125, and the employer FICA savings from reduced taxable wages are completely undisputed.
This is a fully insured fixed-indemnity policy classified as an excepted benefit under federal law (PHSA/ACA). The employee pays this premium with after-tax dollars (deducted from their paycheck after payroll taxes are calculated).
The defining characteristic of fixed-indemnity insurance: benefits are not tied to medical expenses. Fixed-indemnity policies pay a pre-determined dollar amount when a covered event occurs. Because these benefits are paid without regard to actual medical costs, they do not constitute "reimbursement of medical expenses."
This policy pays benefits for:
Wellness benefit triggers include completion of a Health Risk Assessment (HRA), reviewing personalized wellness information, and engaging with preventive health resources. These are participation-based triggers—not clinical procedures or medical expense reimbursements.
Because the employee pays the premium with after-tax dollars, all benefit payments are tax-free under IRC Section 104(a)(3).
The tax treatment of these two policies is governed by different sections of the Internal Revenue Code:
The first policy (before-tax) operates under IRC Section 125 and Section 105(b). Benefits are tax-free to the extent they reimburse qualified medical expenses under IRC Section 213(d). Any "excess benefits" beyond actual medical expenses would be includible in the employee's income, but the employer FICA savings from the before-tax premium deduction remain valid and undisputed.
The second policy (after-tax) operates under IRC Section 104(a)(3), which provides: "Gross income does not include amounts received through accident or health insurance for personal injuries or sickness." Treasury Regulation §1.104-1(d) further clarifies that amounts received through accident or health insurance are excludable from gross income if the premiums were paid by the taxpayer and not by the employer. This statutory authority has been in place since 1954, with Treasury Regulations in effect since 1960.
Under 45 C.F.R. Section 146.145(b)(3) (PHSA/ACA regulations), a fixed-indemnity policy qualifies as an excepted benefit when benefits are paid without regard to actual expenses and the amount is fixed on a per-day, per-event, or per-service basis.
PTE Gold's wellness indemnity policy meets this standard because it pays fixed dollar amounts for wellness participation activities—not reimbursements of medical bills. This excepted benefit classification provides significant compliance advantages for employers with respect to that component.
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.
Even the most skeptical commentary in the marketplace acknowledges the validity of dual-premium structures. There's an article on Aflac's website titled "Watch out for fraudulent health plan tax avoidance schemes" written by attorneys from Alston & Bird (a 900+ attorney firm). Despite the article's cautionary title, these attorneys state: "The tax treatment of benefits paid under fixed indemnity health policies is well established and depends on whether the premium was paid on an after-tax or pretax basis. If the premiums for the policy are paid by the individual on an after-tax basis, then the benefits received are not subject to tax."
The math is straightforward. For an employee earning $4,000/month:
This calculation is based on IRC Section 3121(a)(5)(G), which has provided a FICA exception for Section 125 plans since 1978. There's nothing untruthful about the arithmetic—it's simply applying established tax law.
Employees receive a $1,300 monthly wellness benefit payment (via payroll) for participating in the program. They pay $42/month in after-tax premiums and see a reduction in their tax withholding because their taxable wages are lower. The net effect is that take-home pay increases slightly (typically $7 to $85+ per month depending on income level and tax situation). We deliberately understate this benefit in our marketing because the actual increase varies widely based on individual circumstances.
The employer FICA savings mechanism is not in dispute. The only question ever raised by the IRS concerns employee-level taxation of wellness benefits under before-tax single-premium structures. PTE Gold's dual-premium structure follows the IRS's own guidance for avoiding this issue entirely.
Additionally, PTE Gold provides comprehensive compliance protection insurance through its Provider Captive (and reinsured through a reinsurance company). The standard employer policy provides $250,000 in coverage for legal defense costs, penalties, and interest if the IRS were to challenge the structure. This coverage can be increased up to $10,000,000 through available endorsements. Optional endorsements are also available to include coverage for back FICA and FUTA taxes, and to provide individual employee protection ($15,000 per employee for FICA taxes, defense costs, penalties, and interest). The Reinsurance Company is currently rated by Demotech with an A rating.
This isn't a program marketed only to unsophisticated small businesses. Current PTE Gold users include large PEO companies.
These organizations have in-house legal counsel, external ERISA attorneys, and CFOs who conduct extensive due diligence before implementing programs. They wouldn't move forward with something they believed was a tax avoidance scheme.
The programs the IRS has targeted share common characteristics:
Section 125 cafeteria plans were created by Congress in 1978 to encourage employers to provide health benefits to employees. The Affordable Care Act (2010) further encouraged workplace wellness programs, increasing allowable wellness incentives to 30% of health coverage costs (50% for tobacco cessation). Congress wants employers to invest in employee health — that's why these tax advantages exist.
The reason most executives don't know about this opportunity isn't because it's fraudulent, but because it requires specialized knowledge of how to structure fixed-indemnity insurance as an excepted benefit while maintaining compliance with IRC Section 104(a)(3). Most benefits brokers and insurance companies don't have this expertise.