Compliance Authority

Is Section 125 Legal?
Yes — and here's the proof.

Section 125 has been in the U.S. tax code since 1978. The specific Preventive Care program described on this site was independently reviewed and confirmed compliant in 2025 by HitesmanLaw P.A. (a Super Lawyer-rated ERISA attorney) and CBIZ Advisors LLC (a top-7 U.S. accounting firm). What follows is the full institutional and statutory record — exactly what every CPA, CFO, and attorney who reviewed it before enrolling has seen.

IRS.gov — Section 125 ↗26 U.S. Code § 125 ↗Run Your Numbers →
IRS Section 125 — Federal Law Since 1978
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The Compliance Stack

Five Independent Layers of Proof

01

IRC § 125 — The Statute Itself

The Internal Revenue Code, Section 125 (codified at 26 U.S.C. § 125), has authorized cafeteria plans since 1978. This is the original federal authority — written by Congress, signed into law, and continuously in force for 47 years.

02

IRS Revenue Ruling 69-154

A specific, published IRS ruling that supports the indemnity benefit payment structure used by the program. Situation 3 of the ruling describes the exact mechanism for how post-tax benefit payments retain favorable treatment — this program is grounded in that ruling, not a creative reinterpretation.

03

HitesmanLaw P.A. — May 5, 2025 Opinion Letter

8-page formal legal opinion by Darcy L. Hitesman, J.D. — a Super Lawyer every year since 2000, AV-rated since 1998, co-author of the national ERISA compliance manual. Concludes the program satisfies applicable IRS requirements and addresses the IRS Chief Counsel Advice on double-dip schemes specifically.

04

CBIZ Advisors LLC — August 22, 2025 Review

Independent review by a top-7 U.S. accounting firm (135,000+ clients) covering IRC §§ 125, 105, 106, plus ERISA, ACA, and COBRA compliance. Their conclusion: the program satisfies the requirements of ERISA, the ACA, and COBRA when operated per its provisions.

05

$500,000 Legal Protection — Per Employer

Insurance-backed coverage of up to $500,000 per enrolled employer plus $10,000 per employee participant, covering audit defense costs and attorney fees. This is a backstop, not a substitute for due diligence — but it exists because the operator stands behind the structure financially.

+

Your Own CPA

Every business in our case studies — including a CEO who is himself a CPA, a CFO who is a CPA, and a practicing attorney — independently verified the program with their own counsel before enrolling. That is the standard expectation. The Hitesman opinion and CBIZ letter are share-able PDFs.

Independent Reviews — 2025

The Two Letters Every CPA Asks For

Both letters are available as share-able PDFs — request copies on your free 15-minute analysis call.

Darcy L. Hitesman, J.D.

HitesmanLaw P.A. · Minneapolis, MN · Letter dated May 5, 2025

Darcy L. Hitesman has practiced ERISA, IRC § 125, and HIPAA law for over 35 years. Her formal opinion is the cornerstone of the program's legal record.

“In this firm’s opinion, the Program described satisfies applicable IRS requirements.”

— HitesmanLaw P.A., May 5, 2025

Credentials

  • ✓
    Super Lawyer every year since 2000 (Minnesota)
  • ✓
    AV-rated (highest possible) in Martindale-Hubbell since 1998
  • ✓
    Co-author, ERISA Compliance for Health & Welfare Plans (Thomson Reuters / EBIA) — the national ERISA compliance manual since 1999
  • ✓
    Member, Technical Advisory Group, Employers Council on Flexible Compensation (ECFC) — sets the industry standards for Section 125 plans nationally
  • ✓
    Reviewed the IRS Chief Counsel Advice memoranda on "double-dip" arrangements specifically and concluded this program is structured differently and compliantly

CBIZ Advisors LLC

Top-7 U.S. Accounting Firm · Cleveland, OH · Letter dated August 22, 2025

CBIZ Advisors LLC is a top-7 U.S. accounting firm with 10,000+ employees across 100+ offices, serving 135,000+ clients nationally. Their independent review covers the program's compliance with the major federal regimes touching cafeteria plans.

“If operated per its provisions, the Program appears to satisfy the requirements of ERISA, the ACA, and COBRA as well.”

— CBIZ Advisors LLC, August 22, 2025

Scope of review

  • ✓
    IRC § 125 — cafeteria plan structure and pre-tax salary reduction
  • ✓
    IRC § 105 — accident & health plan benefit payments
  • ✓
    IRC § 106 — employer contributions to accident & health plans
  • ✓
    ERISA — plan asset treatment and reporting
  • ✓
    ACA — integration with the employer mandate and group health plan rules
  • ✓
    COBRA — continuation coverage obligations
The Specific IRS Authority

IRS Revenue Ruling 69-154 — The Ground It Stands On

Revenue Ruling 69-154 is a published IRS ruling that addresses how indemnity insurance benefit payments are taxed when funded through an employer-sponsored plan. The ruling identifies multiple situations and the corresponding tax treatment of each.

Situation 3 of the ruling describes the structure where benefit payments through an indemnity policy retain favorable tax treatment when funded with employer contributions through a properly structured plan. The Preventive Care Section 125 program is designed in direct alignment with that situation:

  • The pre-tax salary reduction funds a HIPAA-compliant participatory wellness program (IRC §§ 105, 106).
  • Wellness rewards are paid through a licensed indemnity insurance carrier — not redirected back as untaxed wages.
  • The benefit payment retains favorable tax treatment under § 105(b) because it reimburses qualifying medical-related expenses, and Rev. Rul. 69-154 supports the payment-flow mechanics.

That distinction — funding a real wellness program through a real carrier, supported by a specific published ruling — is what separates this program from the “double-dip” structures the IRS has flagged.

Direct from IRS.gov

The IRS publishes a permanent reference page describing cafeteria plans, the qualifying benefits, and the legal framework. It is the single best entry point for anyone wanting to read the law in the IRS's own words.

IRS.gov — Cafeteria Plans ↗26 U.S. Code § 125 ↗
Insurance-Backed Coverage

$500,000 Legal Protection — Per Enrolled Employer

$500K
per enrolled employer

Total coverage cap per company, per program year. Covers IRS audit defense costs, attorney fees, and other defense-related expenses.

$10K
per employee participant

Additional per-participant layer that scales with headcount. A 100-person company effectively has a meaningful additional protection layer beyond the $500K base.

Insurance-backed
not a guarantee from a startup

The protection is underwritten by a licensed insurance carrier — the same kind of mechanism used for E&O coverage in the accounting and legal industries. This is what allows the $500K figure to be meaningful.

Important: The legal protection is a backstop, not a substitute for due diligence. Every enrolled employer is expected to share the Hitesman opinion and CBIZ letter with their own CPA before signing.

Section 125 — Common Compliance Questions

The Questions Every CPA, CFO, and Attorney Asks

Direct answers, with citations to the underlying authority and links to IRS.gov.

Yes. Section 125 of the Internal Revenue Code has been federal law since 1978. It is documented at IRS.gov and codified at 26 U.S. Code § 125. The specific Preventive Care Section 125 program offered through ACA Solutions was independently reviewed in 2025 by HitesmanLaw P.A. (a Super Lawyer-rated ERISA attorney with 35+ years of Section 125 experience) and CBIZ Advisors LLC (a top-7 U.S. accounting firm with 135,000+ clients). Both confirmed full compliance.
That is the right question. The IRS has, correctly, flagged certain wellness plans where the same dollars get treated as both pre-tax salary reduction anda tax-free benefit payment — the so-called “double-dip.” HitesmanLaw specifically reviewed the IRS Chief Counsel Advice memoranda on those structures and concluded this program is built differently: the salary reduction funds a HIPAA-compliant participatory wellness program, and the post-tax benefit payment flows through a licensed indemnity carrier — a structure supported by IRS Revenue Ruling 69-154, Situation 3.
Revenue Ruling 69-154 is a published IRS ruling that specifies the tax treatment of indemnity insurance benefits paid to employees. Situation 3 of the ruling describes the structure where benefit payments through an indemnity policy retain favorable tax treatment when funded with employer contributions through a properly structured plan. This program is grounded in that ruling — it is not a creative interpretation but a direct application of a specific, published IRS authority.
Each enrolled employer is covered up to $500,000, plus $10,000 per employee participant, against costs related to a defense of the program — including IRS audit costs and attorney fees. The protection is insurance-backed and runs as long as the employer is enrolled. This is a coverage layer that exists because the program operator stands behind the structure, not a substitute for due diligence with your own CPA.
In our case studies, every CPA, CFO, and attorney who reviewed the program confirmed compliance — including a practicing attorney in San Diego who reviewed the IRS code himself before enrolling his own company. The honest framing: your CPA can advise on whether the structure is set up correctly. They typically cannot draft, file, or administer the plan document, build the wellness platform, or carry the carrier relationship — those are the operator's responsibilities. Bring the Hitesman opinion and CBIZ letter to your CPA. They will tell you the same thing every other CPA has.
Yes — all four. CBIZ Advisors LLC specifically confirmed in their August 22, 2025 letter that, when operated per its provisions, the program satisfies ERISA, the ACA, and COBRA requirements. HitesmanLaw's May 5, 2025 opinion confirms compliance with IRC §§ 125, 105, 106, and 213(d), plus HIPAA's requirements for participatory wellness programs.
Yes — like every Section 125 plan, this program is subject to nondiscrimination testing under IRC § 125(b) and § 125(g), which prevents the plan from disproportionately favoring highly compensated or key employees. Testing is run annually by the plan administrator. The structure of the program (uniform participation across W-2 employees earning $25,000+) is designed to pass these tests.
Slightly. Because FICA taxes are calculated on the reduced pre-tax wages, an employee's Social Security earnings record is also calculated on the reduced wages. For most employees the trade-off is overwhelmingly positive — the immediate take-home pay increase plus the wellness benefits package far outweigh the small projected reduction in future Social Security benefits. Each employee's individual situation should be reviewed with their CPA.
Three primary sources, all public:
  1. IRS.gov — Cafeteria Plans (Section 125)
  2. 26 U.S. Code § 125 (the federal statute)
  3. Request a copy of the Hitesman opinion letter (May 5, 2025) and the CBIZ review (August 22, 2025) on your free 15-minute analysis call. Both are share-able PDFs.

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Verified: CBIZ Advisors LLC (Aug 2025) · HitesmanLaw P.A. (May 2025)
$500K legal protection per enrolled employer · IRS Section 125 · Federal law since 1978