Flexible Spending Accounts Presented By: Brown & Brown Metro, Inc.
Please note that this session is not intended to provide individual financial planning consultations and are informational in nature only. All staff is advised to consult with his or her own professional financial advisor to determine what plan, if any, may work best for them.
FSA Overview A flexible spending account (FSA) is a tax-free account that reimburses employees for medical or dependent care expenses FSAs are offered through a Section 125, or cafeteria, Plan
What is a Section 125 Plan? U.S. Congress created Code Section 125 in an effort to make benefit programs more affordable for employees Section 125 of the IRS Code allows employees to convert a taxable cash benefit (salary) into nontaxable benefits Under a Section 125 program you may choose to pay for qualified benefit premiums before any taxes are deducted from your paycheck
Types of FSAs There are 2 types of FSAs, each with its own rules and limitations Health FSA Dependent Care FSA An employee can have both types, but they must be kept separate (funds from one cannot be used the other type of expense).
Contributions Employees contribute money via payroll deductions through a Section 125 (Cafeteria) Plan Employees designate how much to contribute for the year during Open Enrollment Money is deducted in equal installments each pay period Employees cannot change their election during the year, unless there is a change in employment or family status
Tax Treatment Employee contributions are made pre-tax (no employment or Federal income taxes are deducted) Distributions are tax-free as long as they are used towards qualified expenses
When Funds Are Available Health FSA Annual contribution amount is available at any time throughout the year, regardless of the amount actually in the account Dependent Care FSA Only the amount currently in the account is available for distribution at any given time
Use It Or Lose It Employees own the account, but funds are not carried over and are not portable Employees must use their funds or lose them at the end of the year
Ways to Pay Pay upfront and get reimbursed Pay for services and products Submit reimbursement, proof of purchase and dates and type of service Have your funds automatically deposited into your checking or savings account, or receive a check Pay eligible expenses with your Discovery Benefits Debit Card Use your Discovery Benefits Debit Card to pay for eligible services and products Payments are automatically withdrawn from your FSA, so you don t incur out-of-pocket expenses
If You Leave Employment If an employee leaves or is terminated within the plan year, the health FSA is still available to him or her ONLY if COBRA is elected and contributions are continued. However, the employee may not take the account with him/her
How An FSA Can Save You Money With an FSA Gross Income $48,000 FSA Contribution $2,500 Gross Income $45,500 Estimated Taxes Federal -$7,550 State -$1,020 FICA -$3,480 After-Tax Earnings Eligible Expenses $0 Spendable Income $33,450 Without an FSA Gross Income $48,000 FSA Contribution $0 Gross Income $48,000 Estimated Taxes Federal -$8,175 State -$1,158 FICA -$3,672 After-Tax Earnings Eligible Expenses -$2,500 Spendable Income $32,495
Health FSA A health FSA reimburses employees medical, dental and vision expenses The maximum annual contribution is $2,500 The IRS defines qualified medical expenses as those paid for the diagnosis, cure or treatment of a disease, and must be primarily to alleviate a physical or mental defect or illness. A health FSA may also reimburse medical expenses for a spouse or dependent.
Health FSA Eligible Expenses Examples of eligible expenses include: Deductible and copayments for group health and/or dental plan Eye exams, eyeglasses and contact lenses Hearing exams and hearing aids Exams and treatments that exceed the annual frequency covered by the plan (example: physical exams in excess of one per year) Prescription drugs Medical equipment and supplies (such as crutches, bandages and diagnostic devices) Insulin and blood sugar test kits Over-the the-counter medications (must have prescription)
Health FSA Ineligible Expenses Examples of ineligible expenses include: Premiums for independent insurance coverage or Medicare Premiums for group health coverage under the spouse s employer Elective cosmetic surgery (unless to repair a congenital abnormality or injury or to restore bodily function) An exception is breast reconstruction surgery following a mastectomy
Dependent Care FSA A dependent care FSA can pay for the care of dependent children under age 13 by a babysitter, day care center, or before-school or after-school program. Care for a disabled spouse, parent or child is also eligible if the individual lives with the employee and cannot care for himself or herself. Care must be provided to keep employee and spouse gainfully employed. Care must be given during normal working hours (for example, babysitting on a weekend for recreational time is not allowed).
Dependent Care FSA The annual contribution limit for a dependent care FSA is $5,000 ($2,500 for a married individual filing taxes separately), the employee s earned income or the spouse s earned income whichever is lowest of the three. Dependent care expenses cannot be reimbursed until they are actually incurred (which can be an issue when child care centers pre-bill for services).
Questions?