Dear PTE Visitor,
Many people are skeptical of Payroll Tax Reduction Programs offered by PTE Group Inc. and the one main product that we recommend today that we call PTE Gold. 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 the PTE Gold program 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 pre-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 pre-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.
At its core, the distinction between §105(b) and §104(a)(3) is not semantic but structural: reimbursement regimes require incurred expenses, while insurance regimes require insured events.
In §105(b) designs that have drawn IRS scrutiny, program promoters try to substantiate a cost to make a payment tax-free. In the §104(a)(3) scenario, PTE Gold only substantiates an event. As long as we can point to a record that a wellness, health promotion, or disease prevention service was performed, the after-tax nature of the premium does the heavy lifting for the tax exclusion.
This is why competing programs relying on §105(b) face "recharacterization risk"—they pay fixed dollar amounts not tied to actual out-of-pocket medical expenses, which pushes payments outside §105(b) requirements. PTE Gold avoids this entirely by using §104(a)(3) with after-tax premiums.
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, and the distinction is structural, not semantic:
The first policy (pre-tax) operates under IRC Section 125 for the salary reduction, generating employer FICA savings on reduced taxable wages. This policy provides critical illness coverage, accident indemnity, and term life insurance—benefits that qualify under §213(d) as medical care (diagnosis, cure, mitigation, treatment, or prevention of disease). The pre-tax premium deduction is the undisputed mechanism that creates employer savings. Because these are fixed indemnity benefits paid from a policy with pre-tax premiums, any payments exceeding actual medical expenses incurred would be includible in the employee's income—but this is acceptable because the wellness benefits (the $1,300/month) are deliberately paid from the second policy with after-tax premiums, not this one.
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) clarifies that when an individual purchases accident or health insurance "out of his own funds," benefits are excludable from gross income. Critically, the regulation specifies that pre-tax salary reductions under a Section 125 cafeteria plan are treated as employer contributions, not employee contributions—which is precisely why PTE Gold uses a separate after-tax premium for the wellness policy. Because employees pay this premium with after-tax dollars, all benefits—including fixed indemnity wellness payments not tied to actual medical expenses—are tax-free under §104(a)(3).
This dual-premium architecture is the key differentiator. Competitors relying on a before-tax single-premium structure under §105(b) face "recharacterization risk" because §105(b) is a reimbursement provision requiring actual incurred expenses. PTE Gold's structure uses §104(a)(3), an insurance provision requiring only an insured event (wellness participation), with the after-tax premium doing the "heavy lifting" for the tax exclusion.
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 income is 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.
David Tedder: 949-610-5716 | Lou Elwell: 732-829-7703 | Larry Pearlman: 818-298-6179
David@ptegroupinc.com | Lou@ptegroupinc.com | Larry@ptegroupinc.com