Jacksonville is the largest city by land area in the contiguous United States, and Duval County's real estate market reflects that scale. The city's suburban sprawl and affordable housing stock — median home prices remain significantly below Miami and Tampa — have attracted a consistent stream of first-time buyers and relocating families, fueling steady brokerage activity even when hotter markets cool. Many Jacksonville brokerages serve multiple submarkets simultaneously, from Riverside and San Marco to Ponte Vedra and the Beaches, often with W-2 staff spread across offices and transaction volumes that require professional operations infrastructure.
That operational maturity brings benefit compliance obligations that smaller brokerages sometimes underestimate. When Jacksonville real estate brokerages establish health reimbursement arrangements or self-insured health plans to cover their principals and staff, federal nondiscrimination rules under IRC Section 105(h) immediately apply — regardless of firm size. This guide explains what those rules require, how to test your plan, and what happens when a plan fails.
A Jacksonville brokerage with 40 licensed agents likely has 39 on 1099 contracts and one managing broker on W-2 plus a handful of administrative staff. All the 1099 agents are invisible to IRC 105(h) testing — they are not employees and are excluded from the plan's testing census. Only the W-2 employees matter. For most Jacksonville brokerages, this means a small testing group with a meaningful income differential between the managing broker and support staff.
This ratio — one or two HCIs and a small number of non-HCI staff — actually simplifies compliance in one way: fewer employees means less complex testing arithmetic. But it also means there is little room for error. If the plan excludes even one non-HCI employee from eligibility, it may fail the 70% threshold immediately.
Section 105(h) establishes two tests that a self-insured health plan must pass each plan year. A plan that fails either test causes "excess reimbursements" paid to highly compensated individuals (HCIs) to be included in their gross income.
Eligibility Test. The plan must not discriminate in favor of HCIs as to eligibility to participate. Safe harbor: benefit at least 70% of all non-HCIs. Alternative: benefit at least 80% of all eligible employees if at least 70% of all employees are eligible. The plan can also use a classification-based test, but the classification must not effectively exclude non-HCIs.
Benefits Test. The plan must provide the same benefits to non-HCIs as it does to HCIs. This means: if the plan offers the managing broker reimbursement for all out-of-pocket medical costs, it must offer the same scope of coverage to every other eligible employee. Job-title-based benefit distinctions are a direct path to test failure.
| HCI Category | Description |
|---|---|
| Highest-paid officers | The 5 highest-compensated officers of the employer |
| 10%+ shareholders | Any employee owning 10% or more of the company's stock |
| Top 25% by compensation | The highest-paid 25% of all employees (calculated after excluding certain short-service and part-time employees) |
For a Jacksonville brokerage with 6 W-2 employees, the top 25% rule would identify the top 2 earners as HCIs (25% of 6 = 1.5, rounded up to 2). If both the managing broker and the operations manager are highly compensated, and there are 4 non-HCI administrative staff, the plan must cover all 4 non-HCIs (100%) to comfortably pass the 70% safe harbor test.
When a self-insured plan fails 105(h), the IRS does not void or disqualify the plan. Instead, it recalculates the "excess reimbursements" — the amounts paid to HCIs that they would not have received if the plan had passed — and requires that those amounts be included in the HCIs' W-2 gross income. The employer must withhold and remit applicable income taxes.
In practice, this means that the tax benefits of the self-insured arrangement evaporate for the highly compensated participants. The managing broker who received $8,000 in HRA reimbursements from a failing plan may find $5,000 of that classified as taxable wages — generating an unexpected tax bill and W-2 amendment for the brokerage's payroll team.
Step 1 — Determine plan type. Is the brokerage's health arrangement fully insured (carrier plan) or self-insured (HRA, direct claims funding)? Only self-insured plans require 105(h) testing.
Step 2 — Build the W-2 employee census. List all W-2 employees with compensation, title, and plan enrollment status. Exclude all 1099 agents from the testing pool.
Step 3 — Identify HCIs. Apply the three-prong HCI definition to the census. For most Jacksonville brokerages, this will produce one to two HCIs.
Step 4 — Run the eligibility and benefits tests. Verify that at least 70% of non-HCIs are eligible for the plan. Verify that the plan document and actual plan administration offer the same benefits to all eligible employees regardless of compensation.
Step 5 — Document and retain. Keep test results and supporting data. Retain for at least six years.
Treating the "Office Manager" as 1099 to Simplify Testing. Some brokerages attempt to classify the operations manager as a 1099 contractor to shrink the W-2 employee pool. This can backfire: if the IRS reclassifies the worker as a W-2 employee, the brokerage faces retroactive payroll tax liability in addition to the benefit plan failure.
Forgetting to Retest After Promotions. If a coordinator is promoted to office manager with a significant pay increase, their classification as HCI vs. non-HCI may change. Always retest using current-year compensation data.
Talk to a licensed advisor about health plan nondiscrimination compliance for your Jacksonville real estate brokerage.