Step 1: Employer Legal Profile & Payroll Discovery
Capture corporate entity details for IRS Plan Document drafting and carrier contracts.
Determines pre-tax deduction code generation format.
Must be W-2 payroll workers (1099 contractors are excluded under IRC § 125).
Chroma Early Learning Academy: Master Benchmark Rollout
Real-time status of the 25-campus enterprise deployment across Georgia • Effective Launch: November 1, 2026
Chroma Financial Engine: $129 Administrative Fee & Carrier Pass-Through Ledger
Detailed ledger of funds flow, carrier pass-through, and permanent tax capture across all 353 staff.
Regional Campus Distribution
| Region Cluster | Campus Count | Eligible Staff | Key Campuses | Status |
|---|---|---|---|---|
| Cobb County | 4 Campuses | 58 Staff | East Cobb, South Cobb, Tramore, West Cobb | Active Intake |
| Gwinnett County | 7 Campuses | 102 Staff | Lawrenceville, Duluth, Lilburn, Grayson, Sugarloaf | Active Intake |
| North Metro | 7 Campuses | 94 Staff | Alpharetta, Johns Creek, Roswell, Canton, Parklake | Active Intake |
| South Metro | 7 Campuses | 99 Staff | McDonough, Tyrone, Douglasville, Stockbridge, Newnan | Active Intake |
IRS Statutory Authority & The Safe-Harbor Audit Defense
Comprehensive legal analysis of IRC § 125, § 79, § 106, § 3121(a)(5)(G), and IRS Notice 2002-24 / 2005-42.
⚠️ The "2023 IRS Memo" (CCA 202323006 & CCA 202404010) Explained
What Rogue Promoters Were Doing: In 2023, the IRS targeted promoter arrangements claiming that employees could deduct $1,200 pre-tax under Section 125, and the plan would immediately return $1,000 back to the employee each month as a "tax-free wellness reimbursement" or "fixed indemnity payment" merely for completing a wellness task (like checking in on an app or watching an online video).
The IRS Ruling: The IRS Chief Counsel ruled that fixed cash indemnity payments are NOT excludable from income under IRC § 105(b) if the employee did not incur an actual, substantiated out-of-pocket medical expense under IRC § 213(d). Because they were pre-tax under § 125, Section 104(a)(3) did not protect them, making the reimbursements taxable wages subject to back FICA, FUTA, and penalty assessments!
🛡️ Why Shielded Horizons is 100% Legally Sound
No Circular Cash-Back Scheme: Shielded Horizons NEVER issues fake cash kickbacks or phantom indemnity checks.
Bona Fide Insurance Coverage: The pre-tax salary deduction pays for genuine medical coverage:
- IRC § 106: Gross income does NOT include employer-provided coverage under accident and health plans.
- IRC § 125: Authorizes employees to elect pre-tax salary reductions to pay for qualified health plans without constructive receipt of taxable cash.
- IRC § 3121(a)(5)(G): Express statutory exclusion exempting § 125 salary reductions from Social Security and Medicare (FICA) taxes.
- ACA § 5000A(f): Minimum Essential Coverage (MEC) satisfying federal preventive health guidelines with zero copayments.
Modification of "Use-It-or-Lose-It" Rule & Anti-Deferred Compensation Safe Harbor
Under IRS Notice 2005-42, the Treasury Department and the Internal Revenue Service modified the proposed regulations (Prop. Treas. Reg. §§ 1.125-1 and 1.125-2) prohibiting deferred compensation under cafeteria plans by establishing a statutory safe-harbor grace period:
Employers may amend written cafeteria plan documents to permit a grace period extending through the 15th day of the 3rd calendar month following plan year end (e.g. March 15 for a calendar plan year).
Plan participants have up to 14 months and 15 days (12-month plan year + 2½ month grace period) to incur qualified § 213(d) medical expenses reimbursed from prior-year pre-tax contributions.
Unused funds can never be cashed out, refunded as taxable cash, or converted to subsequent years. Remainder is forfeited, strictly complying with IRC § 125(d)(2), Treas. Reg. § 1.404(b)-1T, and § 409A.
Statutory Cross-Reference Summary
Permits employees to choose between taxable cash wages and qualified nontaxable benefits without constructive receipt. Requires annual irrevocable election and formal written plan.
Excludes the cost of employer-provided accident and health insurance coverage from employee gross income, enabling 100% tax-free funding of MEC, preventive care, and dental/vision.
Permits up to 14 months and 15 days to incur qualified medical expenses, modifying the strict "use-it-or-lose-it" rule while rigorously preventing non-qualified deferred compensation.
Express statutory exemption excluding Section 125 salary reduction amounts from Social Security (6.2%) and Medicare (1.45%) taxes for both employer and employee.
Excludes direct payments or reimbursements for substantiated medical care expenses incurred by employee and dependents under IRC § 213(d).
Governs insurance claim proceeds. Clarifies that benefits funded pre-tax through § 125 must meet medical expense substantiation rules to remain tax-exempt.
Excludes up to $50,000 of group-term life from gross income. Excess coverage (e.g. $25k on a $75k policy) triggers Table I imputed income on W-2 Box 12 Code C while expressly remaining a statutory "qualified benefit" under § 125(f).
Shielded Horizons Operational Cadence: Daily, Weekly & Monthly
Standard Operating Procedures (SOP) for client account administrators, payroll leads, and operations teams.