Section 125 Flexible Benefit Plan Plan Year Frequently Asked Questions & Answers and 125 Plan Summary of Reimbursement Account Arrangement

Transcription

1 PLACER COUNTY OFFICE OF EDUCATION Sectin 125 Flexible Benefit Plan Plan Year Frequently Asked Questins & Answers and 125 Plan Summary f Reimbursement Accunt Arrangement , Ext. 251 Fr

2 . Imprtant Nte This infrmatin is designed t prvide yu with an verview f the benefits and features f the Sectin 125 Plan; the Sectin 125 Plan Dcument prvides detailed infrmatin abut the Plan. The example f tax savings prvided in this handut is based n ur understanding f the tax laws. The Plan Administratr and yur Emplyer d nt prvide tax advice. Please cnsult yur tax advisr regarding yur wn persnal situatin. 1

3 FREQUENTLY ASKED QUESTIONS Q. What is a Sectin 125 Plan? A. It is an emplyer-spnsred benefit plan, which allws an emplyee t pay fr certain unreimbursed medical expenses and dependent/child care expenses n a pre-tax basis, up t stated maximum limits. Emplyees may select frm a list f available cvered benefits. Q. What des this new benefit prgram mean t me? A. This Sectin 125 Plan ( Plan ) means that current after-tax expenditures fr items such as dependent/child care csts, mst medical expenses nt cvered by insurance, and disability incme and medical insurance premiums, can nw be paid fr with pre-tax dllars. The bttm line is that yu may have mre dllars available as increased take-hme pay, r available t purchase ther benefits yu and yur family may need. Q. Will participating in a Sectin 125 Plan affect my Scial Security Benefits? A. Yes, if FICA taxes are nrmally withheld frm yur paycheck, they are nt paid n Sectin 125 salary reductins. Therefre, yur Scial Security benefits at retirement may be reduced. Q. What happens if the tax laws change next year? A. N ne can predict what future changes may ccur in tax laws. This Sectin 125 Plan has been set up in accrdance with current laws and regulatins. If the laws change, apprpriate steps will be taken t bring this Plan int cmpliance with all new regulatins. Q. Can I participate in the Sectin 125 Plan and a Health Spending Accunt (HSA)? A. N, emplyees are nt eligible t cntribute t the medical expense reimbursement accunt if either the emplyee r the emplyee s spuse cntributes t a Health Spending Accunt (HSA). Q. Hw d I enrll in the Sectin 125 Plan? A. Yur Emplyer will facilitate a meeting t review the 125 Plan prgram. During r after the grup meeting please cmplete an electin frm and give the frm t the Plan Representative r turn it int Placer COE Payrll. Q. Must I make my electin befre the beginning date f the Plan Year? A. Yes, yu must make yur benefit electin by submitting yur signed and prperly cmpleted electin frm n later than the date specified in the pen enrllment packet each year fr a July 1st beginning date f the Plan Year r within 30 days f emplyment fr newly hired emplyees. 2

4 Q. Can I make changes in my electin during the Plan Year? A. The nly time tax law regulatins permit yu t make an electin change is if there is a valid change in yur status affecting yur need fr a benefit. Sme examples f a valid status change are: a change in legal marital status; change in number f dependents; cmmencement r terminatin f emplyment; change in wrk schedule; when a dependent satisfies r ceases t satisfy dependent eligibility requirements; change in residence r wrksite. These examples may nt be all-inclusive, and may include certain requirements fr qualificatin. If yu elect t participate in the medical expense reimbursement accunt, electin changes are limited in mst cases t ceasing Plan participatin because f terminatin f yur emplyment. Q. What is a qualified medical expense fr reimbursement under this Plan? A. Qualified medical expenses include mst medical expenses that are nt reimbursed by insurance r any ther surce. Examples include deductibles and c-insurance payments; ther qualified expenses may include items nt cvered by insurance such as visin care, dental csts, and rutine physicals. See a list f expenses eligible fr reimbursement n the Plan Recrd Keeper s website at Frm the hme page select Frms & Tls and then select 125 Cafeteria Plan List f Expense Eligibility. Qualified medical expenses may be either fr yu, yur spuse, r fr yur dependents. Q. Wh is cnsidered a qualified dependent fr reimbursement f qualified medical expenses? A. Yur dependent(s) are the individuals that yu claim as dependent(s) n yur federal incme tax return); this culd include yur children (up t age 26) r yur dependent spuse r anther dependent (i.e. parent) wh is physically nt able t care fr himself r herself, and if their dependent care expenses qualify fr the federal incme tax credit n yur tax return. Q. Wh is cnsidered a qualified dependent fr reimbursement f dependent/child care expenses? A. Yur dependent(s) under the age f 13; r yur dependent spuse r anther dependent (i.e. parent) wh is physically nt able t care fr himself r herself, and if their dependent care expenses qualify fr the federal incme tax credit n yur tax return. Q. Am I required t enrll in bth the dependent/child care and medical expense reimbursement accunts? A. N. Yu can enrll in either accunt, r bth accunts. Q. Hw d I get mney frm my reimbursement accunts? A. Yu must submit a claim frm, which is available at fr any expenses incurred during the Plan Year. The claim frm must be accmpanied 3

5 by prper third party dcumentatin f the nature f the expense, date the expense was incurred, and the name f the prvider f services and/r the dependent/child care prvider acknwledgement frm. The Plan Recrd-Keeper will prcess the claim frm and yu will be reimbursed fr yur expenses. The medical expense reimbursement amunt will be fr the expenses claimed up t the maximum benefit amunt yu elected fr the Plan Year, less any amunts previusly reimbursed. The dependent/child care expense reimbursement amunt will be fr the expense yu claimed up t the amunt yu have in yur accunt at the time the claim is submitted. Please nte that Credit Card receipts d nt qualify as prper dcumentatin fr claim submissin. Fr prper dcumentatin, a receipt frm the prvider f the services rendered must be submitted shwing the nature f the expense, date the expense was incurred, wh the services where fr and the name and cntact infrmatin f the prvider f the services. Reimbursement payments may be electrnically depsited t yur checking r savings accunt by cmpleting the Administratr s Authrizatin Agreement fr Autmatic Depsits frm available n the Recrd-Keepers website at Q. What if my dependent/child care expenses claim frm is fr expenses in excess f the amunt in my accunt? A. Yu will be reimbursed nly fr the amunt in yur accunt at the time the claim is prcessed, and the unreimbursed balance f the submitted expenses will be carried frward t future mnths, and reimbursed as yu make additinal depsits int yur Sectin 125 Plan accunt during the Plan Year. Q. Is there a limit t the amunt I can cntribute t my 125 Plan? A. Yes. The mst that yu may cntribute t yur Medical Expense Reimbursement Accunt is $2,500 fr the Plan Year. The annual limit fr the Dependent Day Care Reimbursement Accunt is $5,000. Q. Can I switch dllars between the dependent/child care and medical reimbursement accunts? A. N. The dllars must be used in each accunt as specified n the electin frm. Q. What happens if I d nt incur enugh expenses t get back the mney I depsited int my Sectin 125 Plan reimbursement accunts? A. Any amunts in excess f $500 remaining in yur Medical Expense Reimbursement accunt nt used fr qualified expenses are frfeited t yur emplyer. This is what is knwn as the use it r lse it prvisin f Internal Revenue Cde Sectin 125. It is very imprtant t be cnservative and accurate in estimating yur expenses fr the Plan Year. Amunts up t $500 remaining in yur Medical Expense Reimbursement Accunt will be carried ver fr use in the next Plan Year. 4

6 Any remaining dllars in yur Dependent Day Care Reimbursement Accunt nt used fr qualified expenses are frfeited t yur emplyer. Again, it is very imprtant t be cnservative and accurate in estimating yur expenses fr the Plan Year. Q. D I have t enrll in the next Plan Year t access any rllver funds I may have frm unused amunts in the prir year s Medical Expense Reimbursement Accunt? A. N. Any dllars (up t $500) that have been rlled ver frm a prir Plan Year (beginning with funds frm the 2014 plan year) are available t yu even if yu have nt reenrlled in the Medical Expense Reimbursement Accunt fr the next Plan Year. Q. Can I take the tax credit fr dependent/child care r the medical expense deductin n my incme tax return if I am in this Plan? A. N. Expenses reimbursed under this Plan may nt be used when calculating yur medical expense deductin r the dependent/child care tax credit. Because it is smetimes mre advantageus t take the dependent/child care tax credit n yur tax return than t participate in the dependent/child care reimbursement accunt, yu shuld discuss which alternative is the best fr yu with yur tax advisr. 5

7 EXAMPLE EMPLOYEE 125 SAVINGS WITHOUT A WITH A 125 FLEXIBLE BENEFIT PLAN 125 FLEXIBLE BENEFIT PLAN Average Mnthly Salary...$2,500 Average Mnthly Salary. $2,500 Less pre-tax PERS/STRS (7% avg.) -175 Pre-tax salary reductins: Taxable Incme.$2,325 Less PERS/STRS (7% avg.) Less Estimated Federal Incme Tax Less Medical Expenses Withhlding (15%) Less Childcare Expenses Less Estimated FICA (7.65%).-178 Less Insurance Premium $1,799 Less Medical Expenses Less Childcare Expenses Less Insurance Premium Net Take-Hme Pay. $1,174 Taxable Incme...$1,700 Less Estimated Federal Incme Tax Withhlding (15%) Estimated FICA withhlding (7.65%) Net Take-Hme Pay...$1,315 SPENDABLE INCOME $1,174 SPENDABLE INCOME. $1,315 Increased incme t yu $ 141 Mnthly $1,692 Annually 12% Increase! 6

8 SECTION 125 FLEXIBLE BENEFITS PLAN SUMMARY OF REIMBURSEMENT ACCOUNT ARRANGEMENT The infrmatin belw is intended t prvide yu with a summary f the Reimbursement Accunts prtin f yur Sectin 125 Flexible Benefit Plan. This is a summary nly. Shuld yu have mre specific questins, please cntact the Plan Administratr r Plan Recrd-Keeper t btain answers with regard t the 125 Plan. Fr questins relating t the affects the 125 Plan will have n yur incme taxes, please cntact yur tax advisr. GENERAL INFORMATION Yu may allcate specified amunts f mnthly salary r wages fr the reimbursement f medical care expenses, dependent day care expenses, r bth. Yu may file a claim frm fr reimbursement f the eligible medical care r dependent day care expenses that yu have incurred. N reimbursements will be made until the first accunt depsit is received frm yur emplyer. IMPORTANT RESTRICTIONS Yu must elect t participate during the pen enrllment perid prir t the beginning f each Plan Year r within 30 days f emplyment fr newly hired emplyees. There is n allwance fr late enrllment. The amunts that yu designate fr medical reimbursement may nt subsequently be used fr reimbursement f dependent day care expenses and vice versa. Fr yur Medical Expense Reimbursement Accunt, if yu d nt file sufficient claims fr reimbursement, yu will lse any unused amunts ver $500. This is ften referred t as the use it r lse it rule. Amunts remaining in yur accunt up t $500 will be carried ver fr use within the next Plan Year. This will nt affect the electin limit amunt f $2500 available fr the year. Fr yur Dependent Care Reimbursement Accunt if yu d nt file sufficient claims fr reimbursement, yu will lse any unused amunt remaining in yur accunt. If yu are enrlled in the Medical Expense Reimbursement Accunt and take an unpaid leave f absence during the Plan Year, yu may: 1. Prepay the cntributins pre-tax, r 2. Cntinue the cntributins n an after-tax basis (pre-tax cntributins may cntinue when yu return t wrk), r 3. Prrate the unpaid cntributins ver the remaining pay perids when yu return t wrk. Failure t make all elected cntributins will result in terminatin f yur accunt as f the date cntributins ceased. 7

9 ELECTION CHANGES Dependent Care electins are irrevcable fr the perid f cverage (the Plan Year), except fr a change in status which affects yur need fr dependent care: a change in yur legal marital status, e.g., marriage, divrce, death f a spuse, legal separatin and annulment; change in number f dependents e.g., birth, death, adptin and placement fr adptin; change in yur r yur spuse s r dependent s emplyment affecting benefit eligibility f yu, yur spuse r dependent, e.g., terminatin r cmmencement f emplyment, strike r lckut, change in hurs, cmmencement r return frm unpaid leave f absence, r change in wrksite; dependent ceases t satisfy dependent eligibility requirement; and, a residence change affecting eligibility fr cverage. An electin change may als be allwed fr a cst r cverage change, r n accunt f a judgment, decree r rder. A mid-year cst increase when the daycare prvider is a relative is nt allwed. The requested change must be n accunt f and cnsistent with the change in status. N changes are permitted fr the Medical Expense Reimbursement Accunt fr any reasn except fr terminatin f emplyment, when yu can leave the Plan. Cntact yur emplyer fr special rules affecting yur Plan. OPTIONS AT EMPLOYMENT TERMINATION Upn terminatin f emplyment, an emplyee may elect t discntinue participatin in the medical expense reimbursement accunt r t cntinue the payment, if eligible, either by pretaxing the remaining cntributins fr the Plan Year frm severance pay r paying the remaining cntributins n an after-tax basis (COBRA) thrugh the end f the Plan Year (if yu have ther medical cverage yu are nly eligible fr COBRA thrugh the current Plan Year). If yu elect t cntinue the cntributin n an after tax-basis, the expenses incurred under the medical expense accunt will cntinue until the premium ceases, and expenses incurred during the perid f cverage will be reimbursed. The cverage may nt cntinue beynd the current Plan Year. If yu d nt elect t cntinue the payments, nly expenses incurred during the perid f cverage will be reimbursed. Cverage under the reimbursement accunt ceases when the payments cease. 8

10 Claim fr Reimbursement Medical Expense Reimbursement Accunt: The medical expense reimbursements will be fr the expenses claimed up t the maximum benefit amunt yu elected fr the year, less any amunts previusly paid. Yu may be reimbursed fr expenses incurred fr services rendered during the current Plan Year. Claims must be submitted n later than 90 days after the end f the Plan Year. Example: Plan Year: thrugh Cntributins Made: thrugh Expenses Can Be Incurred: thrugh Claims fr Reimbursement Must Be Submitted By: Remember, amunts remaining in yur accunt up t $500 will be carried ver fr use within the next Plan Year. Remaining amunts in excess f $500 will be frfeited. Dependent Care Expense Reimbursement Accunt: The dependent care expense reimbursements will be fr the expenses yu claimed up t the amunt yu have in yur accunt. If the dependent care expense claim is in excess f yur accunt balance, the balance f the amunt due will be frwarded t yu as additinal payments are received fr the current Plan Year. Yu may be reimbursed fr expenses incurred fr services rendered during the current Plan Year and fr up t 2 ½ mnths int the fllwing Plan Year. Claims must be submitted n later than 90 days after the end f the Plan Year. Example: Plan Year: thrugh Cntributins Made: thrugh Expenses Can Be Incurred: thrugh Claims fr Reimbursement Must Be Submitted By: Fr All Expense Reimbursement Accunts: All claim frms must be accmpanied by the statement yu received when the service was prvided r an insurance cmpany Explanatin f Benefits which has been prvided by an independent third party. Only expenses prperly verified by the independent third party will be reimbursed. Please nte that Credit Card receipts d nt qualify as prper dcumentatin fr claim submissin. Fr prper dcumentatin, a receipt frm the prvider f the services rendered must be submitted shwing the nature f the expense, date the expense was incurred, wh the services where fr and the name and cntact infrmatin f the prvider f the services. 9

11 Medical Expense Reimbursement Accunt Yur medical expense reimbursement accunt may be used t reimburse yurself fr expenses incurred fr services rendered during the current Plan Year, fr treatment f yurself, yur spuse, and yur eligible dependents. Medical expense reimbursements are fr eligible expenses that have nt been and will nt be reimbursed by any ther insurance r reimbursement prgram. Eligible medical expenses include deductible and cinsurance amunts under a grup health plan, charges that are in excess f the amunt reimbursed under a grup health plan, and charges that are nt cvered by a grup health plan such as certain crrective surgery, visin care, dental care and hearing aids. Eligible medical expenses must be fr the preventin, diagnsis, treatment and care f a physical r mental defect, illness r disease. Examples f eligible medical expenses include: Amunts that are nt paid by any ther medical r dental plan r prgram such as cpayments, cinsurance amunts, amunts in excess f insurance plan limits r many items that may nt be cvered under yur medical r dental plan. The cst f eye examinatins, frames, lenses, cntact lenses, hearing aids and examinatins. The cst f prescriptin drugs that may nt be cvered under any ther prgram. Sme ver the cunter medicines r drugs that are purchased t alleviate r treat persnal injuries r sickness. A letter r a prescriptin frm a physician stating the medical necessity f the purchase must be submitted with each ver the cunter drug purchase in rder t be eligible fr reimbursement. The dcumentatin shuld include what, wh, when and hw much. In additin, the receipts shuld cntain the name f the drug and the date and amunt f the expenses. T claim vitamins, herbs r nutritinal supplements, yu must have been diagnsed by a medical practitiner with a medical cnditin that necessitates these expenses. Examples f expenses that are nt eligible fr reimbursement under the Plan are: Over the cunter medicines r drugs that are nt medically necessary. T be eligible fr reimbursement the claim submissin must be accmpanied by a letter r prescriptin frm a physician stating the medical necessity. Expenses which are merely beneficial t the general health f the persn, such as exercise, fitness, nutritin, recreatin, vacatin, r membership in a spa r health club. Amunts paid fr meals while receiving medical care away frm hme. The csts f tiletries r csmetics. Amunts cmpensated by insurance r any ther benefit prgram r arrangement. Csmetic surgery and prcedures unless it is fr recnstructin due t disease, birth defect r accident. Fr a mre infrmatin regarding items r services that are eligible fr reimbursement, please g t r cntact Envy Plan Services at , ext. 251 r

12 Dependent Care Expense Reimbursement Accunt Yur dependent care expenses must be incurred t allw yu (and yur spuse if yu are married) t wrk r lk fr wrk. (There are special rules relating t student spuses and disabled spuses explained later in this brchure). Yu must have incme frm wrk during the year. Yu must have made payments fr dependent care t smene yu culd nt claim as a dependent and, if the persn yu made payments t was yur child, he r she must have been age 19 r ver by the end f the tax year. Child supprt payments and childcare payments qualifying as alimny are nt qualified expenses fr reimbursement. WORK REQUIREMENT Wrk may include actively lking fr wrk. Unpaid vlunteer wrk r vlunteer wrk fr nminal salary des nt qualify. ELIGIBLE DEPENDENT CARE EXPENSES Yu may allcate up t $5,000 per tax year fr reimbursement f dependent care expenses ($2,500 if yu are married and file a separate return). The services f a husekeeper, maid, r ck are usually cnsidered necessary t run yur hme if perfrmed in cnnectin with care f the qualifying dependent. Dependent care center expenses are als eligible dependent care expenses if the care is fr yur dependent under age 13 r fr any ther qualifying dependent that regularly spends at least 8 hurs daily in yur husehld. The dependent care center r an individual prviding dependent care must cmply with all applicable federal, state and lcal regulatins. A dependent care center is a place that prvides care fr mre than six persns (ther than persns wh live there) and receives a fee, payment, r grant fr prviding services fr any f thse persns, regardless f whether r nt the center is run fr prfit. The cst f getting a qualifying dependent t and frm yur hme t the care lcatin is nt an eligible expense. QUALIFYING DEPENDENT A qualifying dependent is defined as a dependent that lives in yur hme and is: 1. Yur dependent under age 13 fr whm yu may claim an exemptin deductin (but see child f divrced r separated parents, belw), r 11

13 2. Yur dependent wh is physically r mentally nt able t care fr himself r herself and spends at least 8 hurs in yur hme daily, r 3. Yur spuse wh is physically r mentally nt able t care fr himself r herself, and spends at least 8 hurs in yur hme daily. Individuals that cannt care fr themselves are defined as persns wh are nt able t dress, clean, feed themselves, r wh have a physical r mental prblem. CHILD OF DIVORCED OR SEPARATED PARENTS IF YOU ARE DIVORCED OR SEPARATED, YOUR CHILD OR STEPCHILD QUALIFIES IF: 1. The child is under age 13 r nt able t care fr himself r herself, and 2. Yu are custdial parent and the child lives in yur hme. PAYMENTS TO RELATIVES Eligible dependent care expenses d nt include payment t a persn yu may claim as a dependent fr federal incme tax purpses. Payments t yur child are nt eligible expenses unless yur child was age 19 r ver by the end f the year. EARNED INCOME LIMIT Yur eligible expenses during a calendar year may nt be mre than: 1. Yur earned incme fr the year, if yu are single at the end f the calendar year, r 2. The smaller f yur earned incme r yur spuse s earned incme fr the year if yu are married at the end f the calendar year. STUDENT SPOUSE OR DISABLED SPOUSE If yu are married and, fr any mnth, yur spuse is either a full-time student r nt able t care fr himself r herself, yur spuse will be cnsidered t have earned incme f $200 a mnth if there is ne qualifying dependent in yur hme, r $400 a mnth if there are tw r mre qualifying dependents in yur hme. Yur spuse is cnsidered t have wrked if: He r she was a full-time student during each f 5 mnths during the calendar year, r He r she was physically r mentally nt able t care fr himself r herself. A full-time student is ne wh is enrlled at a schl during each f 5 calendar mnths f the calendar year, nt necessarily cnsecutive, fr the number f hurs cnsidered t be a full-time curse f study. TAX CREDIT ALTERNATIVE 12

14 Yu shuld be aware that yu may be able t take a federal tax credit fr the amunt yu pay fr dependent care expenses instead f participating in the dependent care expense reimbursement accunt. The tax credit is a direct reductin f the tax yu we t the federal gvernment, unlike the incme exclusin f participating in the dependent care reimbursement accunt. Many states als prvide a state tax credit fr dependent care expenses. Yu shuld cnsult with yur tax advisr as t whether the tax credit may be mre favrable fr yu than participating in the dependent care expense reimbursement accunt. Yu may als wish t btain IRS Publicatin 503 fr mre infrmatin abut the federal tax credit. Imprtant Tax Infrmatin Regardless f whether yu participate in the dependent day care Plan under Sectin 125 r claim the credit n yur incme tax, yu must prvide the IRS with the name, address and taxpayer identificatin number (TIN) f yur dependent day care prvider(s) by cmpleting either Schedule 2 f Frm 1040A, r Frm 2441 and attaching it t yur annual incme tax return. These requirements are subject t change by the IRS. Be sure that yu fllw the current instructins given by the IRS fr preparing yur annual incme tax return. Failure t prvide this infrmatin t the IRS culd result in lss f the pre-tax exemptin fr yur dependent day care expenses. 13