The Complete Guide to Self-Insured Medical Reimbursement Plans (SIMRP)

What a SIMRP is, in plain English

A SIMRP, or self-insured medical reimbursement plan, is an employer plan that reimburses employees for medical care out of the employer's own plan rather than through an insurance policy that shifts the risk to an insurer. The federal rules for these plans are in 26 CFR § 1.105-11.

In practice, a SIMRP is usually paired with a Section 125 cafeteria plan. Employees choose to have part of their pay redirected before taxes, and they receive health and wellness benefits in return. Because pre-tax pay lowers the wages that payroll taxes apply to, the employer's share of payroll taxes goes down, and many employees see more take-home pay.

How Section 125 and Section 105 work together

• Section 125 (the cafeteria plan) is how money goes in. 26 U.S.C. § 125 lets employees choose between taxable cash and certain qualified benefits, so salary reductions for those benefits can be made before taxes.
• Section 105 (the medical reimbursement plan) is how benefits come out. Under 26 U.S.C. § 105, amounts an employer plan pays to reimburse employees for medical care can be excluded from income when the plan follows the rules.

Both sides need to be documented and run correctly. If either is set up wrong, the tax treatment can fall apart.

Who is eligible

• Your organization does not have to offer health insurance. Eligibility is decided employee by employee.
• Employees qualify with compliant health coverage from any source, such as an employer plan, a spouse's or parent's plan, their own paid coverage, TRICARE or state subsidies.
• Employees on federally subsidized marketplace coverage, or with no coverage, do not qualify on their own.
• If some employees need coverage, a SIMRP Advisor may be able to provide guidance so they can take part.
• There is no minimum number of employees. Every organization starts with a free, no-obligation payroll census that shows who is eligible.

The nondiscrimination tests

The heart of 26 CFR § 1.105-11 is the nondiscrimination rules. A self-insured plan cannot be designed to favor "highly compensated individuals." The regulation defines them as the five highest-paid officers, shareholders who own more than 10% of the company, and employees among the highest-paid 25% of all employees.

The regulation looks at two things:

• Who is eligible. The plan must benefit 70% or more of all employees, or 80% or more of eligible employees when at least 70% are eligible, or a classification of employees the IRS finds nondiscriminatory. Some employees can be left out of the count, including those with fewer than three years of service, those under age 25, part-time and seasonal workers, employees covered by a collective bargaining agreement, and certain nonresident aliens.
• What benefits are offered. Every benefit offered to highly compensated participants must also be offered to all other participants.

If a plan fails, the consequence falls on the highly compensated individuals: some or all of their reimbursements (the "excess reimbursement") become taxable income to them. That is why testing belongs in the design from the start.

Compliant vs. non-compliant plans

In Chief Counsel Advice memorandum 202323006 (2023), the IRS looked at a wellness indemnity arrangement that paid employees a fixed amount for doing a wellness activity, whether or not they had any medical expense. The IRS concluded those payments are wages, subject to income tax withholding, Social Security and Medicare (FICA), and federal unemployment (FUTA) taxes. The memo cannot be cited as precedent, but it shows how the IRS views these arrangements.

A compliant SIMRP	A plan that invites trouble
Payments tied to real medical care or coverage	Flat cash payouts with no medical expense behind them
Passes the 26 CFR § 1.105-11 nondiscrimination tests	Richer benefits for owners or top earners
Checks each employee's coverage	Ignores whether employees have compliant coverage
Written plan documents and records	No documentation of how payments connect to care
Correct payroll and W-2 coding	Payroll coding that treats taxable pay as tax-free

For a deeper look, read How a Compliant SIMRP Works (and the IRS 2023 Wellness Plan Warning).

Payroll and W-2 handling, at a high level

• The Section 125 salary reduction is set up as a pre-tax deduction in payroll, which lowers the wages subject to income and payroll taxes.
• Benefit payments under the Section 105 plan are coded so that real medical reimbursements are treated as non-taxable, while anything that is not a medical reimbursement is treated as wages.
• W-2 reporting has to match how the plan actually runs. Your payroll provider and tax advisor should confirm the setup before the first payroll.

Who a SIMRP is for

• Private businesses. Estimated employer payroll tax savings of about $590 per participating employee per year.
• Schools and educational organizations. The same estimates apply based on Social Security status, plus an estimated $48-per-employee scholarship line.
• Governments and public employers. About $590 per employee where employees pay Social Security, and about $24 per employee where they do not.

All figures are estimates, not guarantees. Try the savings calculator or request a free payroll census for a number specific to your organization.

Searching for "WIMPER"?

WIMPER is a marketing name you may see for wellness programs built on this same structure. The IRS regulates self-insured medical reimbursement plans, not "WIMPERs." Read What Is a WIMPER Plan? (And Why It Depends on a SIMRP).

Frequently asked questions

What does SIMRP stand for?

SIMRP stands for self-insured medical reimbursement plan. The Treasury regulation that governs these plans is 26 CFR § 1.105-11.

Is a SIMRP legal?

A self-insured medical reimbursement plan is a structure recognized in federal tax regulations (26 CFR § 1.105-11). Whether a particular plan gets favorable tax treatment depends on how it is designed and run, including the nondiscrimination rules and tying payments to real medical care or coverage.

Do we have to offer health insurance to use a SIMRP?

No. The employer does not need to offer insurance. Each participating employee needs compliant health coverage from any source. Employees with federally subsidized marketplace coverage or no coverage do not qualify on their own, but if some of your employees are in that situation, a SIMRP Advisor may be able to provide guidance so they can take part.

Is there a minimum number of employees?

No. There is no minimum employee count. Every organization can run the free payroll census to see whether a SIMRP fits.

How much could we save?

Estimates used on this site are about $590 per participating employee per year for private employers and for public employers whose employees pay Social Security, and about $24 per employee for public employers whose employees do not pay Social Security. Educational organizations also see a scholarship line estimated at $48 per employee. These are estimates only; a free payroll census gives a number for your organization.

What did the IRS warn about in 2023?

In Chief Counsel Advice memorandum 202323006, the IRS concluded that fixed payments from a wellness indemnity policy made without any unreimbursed medical expense are taxable wages. A compliant SIMRP ties payments to real medical care or coverage.

Is a WIMPER the same as a SIMRP?

WIMPER is a marketing name, not a term used in IRS regulations. A program sold as a WIMPER depends on a compliant self-insured medical reimbursement plan, which is the structure the regulations actually address.

Keep reading

• What Is a WIMPER Plan? (And Why It Depends on a SIMRP)
• WIMPER vs. SIMRP: Why the IRS Only Recognizes the SIMRP
• Is a WIMPER Plan Legal? What the IRS Actually Regulates
• How a Compliant SIMRP Works (and the IRS 2023 Wellness Plan Warning)