Flexible Spending Accounts allow your employees to reimburse themselves tax-free for certain expenses:
- Healthcare expenses not covered by your group health insurance plan.
- Work-related expenses for dependent care of children under 13, as well as the care for certain other dependents.
- Allows reimbursement for work related, dependent care expenses of children under the age of 13, as well as the care of certain other dependents.
- Employees may be reimbursed for charges by a licensed daycare center, as well as charges for a caregiver in an employee's home. Caregivers cannot be:
- An Employee's Spouse
- An Employee's child under the age of 19
- Anyone who can be claimed as an Employee's dependent
When employees participate in a Flexible Spending Account:
- They contribute pre-tax dollars in advance to an account in their name. You as the employer hold the employee's contributions until the money is requested by Midwest Group Benefits.
- Later, when they have eligible expenses, they can be reimbursed from their account. Employees may submit for reimbursement as often as they like. Claims are processed in our office weekly.
- Employees may withdraw the total amount of their Medical Spending account election at any time during the plan year once they have incurred reimbursable expenses
- For the Dependent Care Account employees can only be reimbursed for amount that they have contributed to date.
- The general calculation for tax savings is to multiply the amount of money an employee will redirect by their tax rate. Here is an example:
How an HSA is different than a FSA & HRA:
Gross Monthly Pay:
Federal Tax (15%)
State Tax (6%)
INCOME AFTER TAXES:
ACTUAL TAKE HOME PAY:
nO '125' bENEFIT
FULL '125' bENEFIT
Who Can Sponsor a Flexible Spending Account Plan?
Regular corporations, partnerships, S corporations, limited liability companies (LLCs), sole proprietors, professional corporations and not-for-profits can all save money on payroll taxes by establishing a Flexible Spending Account. While regulations prohibit a sole proprietor, partner, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation from participating in the plan, they may still sponsor a plan and benefit from the savings on payroll taxes.
Who Can Participate in a Medical Flexible Spending Account?
The IRS issued guidance for Health FSAs in September 2013 in Notice 2013-54. This Notice requires that to be eligible to participate in a Health FSA, the employee must be "eligible" on the employer's group health plan. The employee does NOT, however, have to be enrolled on the group health plan to participate.
IRS Notice 2013-54 also clarified limitations to what employers could contribute on behalf of employees to a Health FSA. Employer credits to Health FSAs must limit the maximum payable to 2 times the participant's salary reduction or, if greater, the participant's salary reduction plus $500. What does this mean? Simply that Health FSAs can include employer contributions of $500 or up to a dollar for dollar match of each participant's salary reduction.
- There are several 'rules' the IRS has implemented for Section 125 participants that you should be aware of:
- Plan Year. Only expenses incurred during the plan year are reimbursable (though payment of these expenses can be carried over for a short time.)
- Separate Accounts. Un-reimbursed medical expenses and dependent care expenses are treated as separate accounts. The IRS does not allow employees to transfer money between those accounts.
- Family Status Changes. Once you make your decisions on how much you redirect into your spending accounts, this cannot change… except for changes in your family status which include: Marriage, divorce, death of a spouse or child, birth or adoption of a child, or change in your spouse's employment status from full-time to part-time or vise versa.
- Forfeiture of Unused Balance. If expenses you incur for the Plan Year are less than your contributions for that same Plan Year, you will forfeit the unused balance. With wise and conservative planning most participants do not forfeit any money.
Flexible Spending Account FAQ
You can use this account to reimburse yourself for expenses that are not covered by your insurance. For example, your plan may not cover eye-exams, glasses, orthodontics, so you can pay for these expenses pre-tax through the FSA.
Yes, the contributions into a FSA come out of your paycheck "pre-tax". This means that these dollars are not subject to Federal, State or FICA taxes.
Yes, you may still participate as long as you have met the eligibility as set out in your plan's documents.
Only if you have a change in status. A change in status would be one of the following events:
- Birth or Adoption of a child
- Divorce, Legal Separation or annulment
- Death of Spouse and/or dependent
- Termination of employment by employee
- Termination or commencement of employment by your spouse or your dependent
- You or your spouse take an unpaid leave of absence
- You, your spouse or dependent are switching from part-time to full-time (or vice-versa)
- A significant change in your family's health coverage attributable to your spouse's employment
- Dependent ceases to satisfy the requirements for unmarried dependents due to the attainment of age, student status or any similar circumstances as provided under the accident or health plan under which the employee receives coverage
- A change in the place of residence or worksite of the employee, spouse or dependent
No, you can submit claims for eligible expenses for yourself, your spouse and your dependents.
You must complete a claim form (which is available on this web-site or from your Plan Administrator). Once the claim form is completed and all supporting documentation is attached, mail or fax your form to our office and your claim will be processed. Be sure to sign and date your form!
Claims are processed weekly on Wednesdays. Claims must be received by our office by noon on Tuesdays.
The amount you set aside each year for the FSA is available to you at any time throughout the plan year. The amount available to you from your Dependent Care Account is the amount you have contributed to date.
You will be able to request reimbursement for healthcare and dependent care expenses that you incurred prior to your termination date.
It is important to carefully estimate your expenses for the year in an FSA. Generally after the end of the plan year a plan has a "grace period" in which you can still submit claims for the prior plan year. If after the grace period you still have money in your account, it will be forfeited.