Below you will find answers to questions that others have had about Flexible Spending Accounts. What is a Flexible Spending Account? What is a Health Care Spending Account? What is a Dependent Care Account? How does an FSA save money? What benefits can be purchased on a pre-tax basis? How does a Flexible Spending Account work? Are there any limitations? How do I submit a claim? How often can reimbursements be requested? What happens if funds are not used in the plan year? How is the W-2 reported at the end of the year? What is a Flexible Spending Account? A Flexible Spending Account (FSA) is an employee benefit program that allows you to set aside money, on a pre-tax basis, for certain kinds of common expenses. With an FSA, you can reduce your taxes while paying for service costs you incur anyway. There are two types of FSAs: Medical Reimbursement Accounts and Dependent Care Accounts. What is a Healthcare Flexible Spending Account? A Healthcare Flexible Spending Account allows employees to be reimbursed for out-of-pocket healthcare expenses that are not covered by insurance, and that meet IRS deductible expense rules under Code Section 213. One example is the deductible portion of your health care plan. Over the counter medication used to treat health care conditions are now eligible for reimbursement. Click here for a partial list. What is a Dependent Care Account? A Dependent Care Account is an option offered under an FSA, which allows employees to be reimbursed for care expenses for a child under the age of 13 who lives in your home at least eight hours a day, or a dependent who is physically or mentally incapable of self care, and who lives in your home at least eight hours a day. Expenses that are eligible for reimbursement include: Payment to someone who provides care for a dependent in your home, or his or her home. Payment to an eligible day care facility. This is generally funded by pre-tax payroll deductions. How does a Flexible Spending Account work? Setting up an account is very simple. An employer offers the plan to all eligible employees. Those who opt for the program complete a simple agreement to participate. This agreement states how much money the employee wishes to place into their flex account during the plan year. Each employee's participation is purely voluntary. Each pay period an amount is deducted prior to calculating Federal and social security tax. In some states, the contribution may also be exempt from state and local taxes. The amount is placed into an account administered by Benefit Managers Company. As expenses occur, the employee submits a simple claim form and monies are reimbursed. How do FSAs save money? FSAs let you set aside money before taxes are deducted from your paycheck. This means the amount of income your taxes are based upon will be lower, and as a result, your tax liability is lower. Below is an example: Annual Savings Example* With Reimbursement Account Without Reimbursement Account   Annual pay   $50,000   $ 50,000   Pre-tax contribution to the    reimbursement account   $(2,400)   $ -   Taxable income   $47,600   $50,000   Federal income and Social    Security taxes   $(9,632)   $(10,354)   After-tax dollars spent on    eligible expenses   $ -   $(2,400)   Spendable income   $37,968   $37,246   Tax savings with the    reimbursement account:    $722   $ - * Sample tax savings for married wage earners filing jointly, based on 2001 tax information. Actual savings will vary based on your individual tax situation. Please consult a tax professional for more information. What benefits can be purchased on a pre-tax basis? Only employer sponsored benefits that meet IRS deductible rules qualify for the plan, such as: Dependent Care Account Healthcare Spending Account Premium Only Plans (POP) Medical insurance Dental insurance Vision insurance Accident insurance Cancer insurance Intensive care insurance Hospital indemnity insurance Short and long term disability Employee group term life insurance Accidental death & dismemberment (AD&D) Are there any limitations? The employer sets a limit on the medical reimbursement at the beginning of the plan year, and the IRS sets the rules on what is reimbursable. Also, the IRS sets maximums for dependent care. Allowable reimbursements cannot exceed the total of the employee's contributions. How do I submit a claim? As expenses are incurred, the employee submits a simple (provided by Benefit Managers Company) and attaches the appropriate documentation. The form may be either mailed or faxed to the plan administrator. If the expenses meet IRS code requirements, the employee is sent a check reimbursing them. How often can reimbursement claims be filed? As often as daily! Benefit Managers Company processes claims as soon as they are received. Reimbursement is quick and mailed directly to the employee. What happens if funds are not used in a plan year? The IRS rules state that any funds left in the account at the end of the plan year are lost. However, on average less than 2% of the account funds are typically lost. Employees often use their account balances at the end of the year for eyeglasses, examinations, or other preventative services. How is the W-2 reported at year-end? If an employee earns $20,000 for the year and payroll deducts $1,000 before taxes for an FSA, the W-2 will report $19,000.
		Benefit Managers Company is a member of the Employee Benefits Institute of America and Employers Council on Flexible Compensation. These products are not insurance plans, nor are they intended to replace insurance. All plans are compliant with tax codes of the United States Internal Revenue Service. Copyright © 2003 Benefit Managers Company, All Rights Reserved