under a cafeteria plan of an eligible employer (as defined in subsection (j)(5)) and for purposes of any prohibition on discrimination (including subsection (b)) with respect to a cafeteria plan— (i) the term employee includes an individual who is an employee within the meaning of section 401(c)(1) and any individual treated as a partner under section 1372(a), (ii) an individual who owns the entire interest in an unincorporated trade or business shall be treated as his own employer, and (iii) a partnership shall be treated as the employer of each partner who is an employee within the meaning of clause (i). (B) Limitation (i) Amounts excluded not to exceed earned income In the case of an individual treated as an employee by reason of subparagraph (A)(i), subsection (a) shall apply to amounts for an individual only to the extent that such amounts exceeds the individual’s earned income (as defined in section 401(c)(2)) derived from the trade or business with respect to which the cafeteria plan is maintained. (ii) Partnerships This paragraph shall apply in the case of any individual treated as a partner under section 1372(a), except that, for purposes of this subsection, such individual’s wages (as defined in section 3121) from the S corporation shall be treated as such individual’s earned income, and there shall be such adjustments in the application of this subsection as the Secretary may by regulations prescribe. (C) Denial of double benefit No deduction or credit shall be allowed to an employee under any section of this chapter for any amount excluded from gross income under subsection (a) by reason of this paragraph. . (b) Simple cafeteria plans Paragraph (3) of section 125(j) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: (E) Alternative for certain plans (i) In general In the case of a plan that covers one or more individuals described in clause (i) of subsection (g)(5)(A), the requirements of this paragraph shall be treated as met if the average employer