According to HealthWorX, IRS Memoranda Make Tax-Engineered Section 105(b) Programs Too Risky to Trust

The nonprofit–TPA model delivers real 'no-cost' healthcare rather than converting payroll deductions into questionable 'tax-free' cash payments

OXNARD, Calif., Sept. 18, 2026 /PRNewswire/ -- The nonprofit–third-party administrator model is not merely an alternative to tax-engineered Section 105(b) reimbursement programs—it is a safer, more transparent, and fundamentally superior future for employer-sponsored healthcare.

The architect of the nonprofit-TPA model, HealthWorX, emphasized that legitimate Section 105(b) plans serve an important purpose by reimbursing employees for qualifying medical expenses they actually incur. However, the danger arises when promoters attempt to transform the statute into a payroll strategy: taxable wages are reduced, money is returned to employees through purported wellness, indemnity, or medical benefits, and the returned amounts are represented as tax-free even when they are not tied to actual unreimbursed medical expenses.

The Internal Revenue Service has repeatedly challenged that theory. Chief Counsel Memorandum 201622031 concluded that cash wellness rewards and reimbursements of premiums previously paid through pre-tax salary reductions could not be excluded from employees' gross income. Memorandum 201719025 examined a self-funded arrangement in which payments for health-related activities predictably exceeded employees' after-tax contributions and concluded that the amounts were income and wages. Memorandum 202323006 reaffirmed that wellness indemnity payments are taxable when employees have no corresponding unreimbursed medical expenses.

Although Chief Counsel memoranda state that they may not be used or cited as precedent, their repeated, consistent analysis warns employers not to ignore them. A program does not become tax-free merely because its documents contain the words "medical," "wellness," or "Section 105(b)." When the economic substance resembles wages being removed from payroll and returned under another label, employers may face corrected tax reporting, withholding obligations, FICA and FUTA exposure, additional administrative costs, and damaged employee confidence.

"That is what makes many of these arrangements unsafe and increasingly difficult to trust," said Dr. John Zabasky, Chairman and Chief Executive Officer of WorXsiteHR, the third-party administrator supporting HealthWorX. "Employers are being asked to rely on tax assumptions that the IRS has addressed repeatedly. Employees are being told that a cash-like payment is a healthcare benefit. Neither proposition creates a dependable foundation for the future."

The HealthWorX nonprofit–TPA model is built on a fundamentally different premise: healthcare should deliver real healthcare. The nonprofit component advances a mission to reduce financial barriers and expand access, particularly for lower-income and frontline workers. The TPA supplies enrollment, eligibility administration, participant support, claims-related functions, plan oversight, and documented operational controls. Rather than using healthcare terminology to justify recurring cash payments, the model directs resources toward provider access and meaningful healthcare services.

HealthWorX also reports that its model successfully underwent a U.S. Department of Labor audit, reinforcing its commitment to transparent administration and compliance-focused operations.

"The choice is becoming clear," Zabasky added. "Employers can purchase a temporary tax narrative, or they can invest in durable healthcare infrastructure. The nonprofit–TPA model earns trust because its value comes from care—not from disguising taxable compensation as a medical reimbursement."

About HealthWorX

HealthWorX advances employer-sponsored healthcare through a nonprofit–TPA model designed to expand access, remove financial barriers, and support accountable benefits administration.

Media Contact:
Dr. Diana McCosham, MD, MBA
Marketing Director, WorXsiteHR
[email protected] | 877-479-3591 x110

SOURCE HealthWorX