Who is Eligible to participate in a 125 Cafeteria Plan? These plans are for employees ONLY. Owners of a business are not eligible. Below is a chart with further definitions of who is eligible. (write your congressman!) The guidelines for Section 125 eligibility have recently been clarified.  Subchapter S Corporation - no 2% or greater shareholders are eligible. The employed spouse, children, grandchildren and parents of a 2% or more stockholder cannot participate due to ownership attribution rules.  Partnership and LLC's - partners aren't eligible. The employed spouse, children, grandchildren and parents of a partner cannot participate due to ownership attribution rules.  Sole Proprietorship- Only employees are eligible. No owner is eligible.  C-Corporation - All employees are eligible, including the owner. If your business is not a C corporation and you would like to pay some expenses such as deductibles on medical or dental or vision pre-tax there are a couple of other ways to do that: You might qualify to do so on your income taxes if you have a bad year in costs. See you tax consul for more information The Section 105 plans can work to do this although you need to consult with proper tax consul to see if such a plan would work for you Health Savings Accounts - new in 2004 allows anyone to set up a pretax account to pay medical deductibles and such. See the medical section for more information on HSA plans. Interested in more information or obtaining documents to establish your own 125 plan Click here