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Flexible Spending Accounts…The Legal Way to Launder
Money
What is A Flexible Spending Account?
Tax Savings Example for Employee and
Employer
Section 125 POP Plans
Healthcare Spending Accounts
Dependent Care Accounts
Premium Reimbursement
Employer Contribution/Credit Plans
FMLA Facts
Services Provided By FlexAmerica
Fees & Services - what is this
going to cost me
Employer Q&A
What is a Flexible Spending Account?
- A FSA is tax break under the IRS Code which grants employees a choice
between tax-free benefits and cash
- Commonly referred to as cafeteria plans, Section 125 plans or POP (Premium
Only Plans) plans
- Provides the vehicle for employees to reduce their pay for insurance
premiums, out-of-pocket medical and dental expenses and dependent care expenses without paying federal, state or
FICA taxes, saving at least 30% in taxes on their election.
- Employers save between 1.45%- 7.65% in FICA taxes based on employee
elections
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Tax Savings Example
Employee estimating a total $2,000 in eligible expenses which
includes insurance premiums and unreimbursed medical costs.
| |
W/o FSA |
W/ FSA |
| Salary |
$30,000 |
$30,000 |
| Annual Pre-tax Election |
0 |
2,000 |
| Taxable income |
$30,000 |
$28,000 |
| Taxes with held (30.65%)* |
-9,195 |
-8,582 |
| Annual after tax expenses |
- 2,000 |
0 |
| Take home pay |
$18,805 |
$19,418 |
| Increase in take home pay w/ an FSA: |
|
$613 |
Employee estimating $6,000 in eligible expenses which include
dependent care, insurance premiums & unreimbursed medical costs.
| |
W/o FSA |
W/ FSA |
| Salary |
$50,000 |
$50,000 |
| Annual Pre-tax Election |
0 |
6,000 |
| Taxable income |
$50,000 |
$44,000 |
| Taxes with held (30.65%)* |
- 15,325 |
- 13,486 |
| Annual after tax expenses |
6,000 |
0 |
| Take home pay |
$28,675 |
$30,514 |
| Increase in take home pay w/ an FSA: |
|
$1,839** |
*Federal & state taxes estimated at 23% and social security at 7.65%.
** $5,000 of the $6,000 was used to pay for day care for 1 child. The federal tax credit limit for 1 child is $2,400.
The employer sponsored plan allows a maximum of $5,000 per household which is $2,600 more than the federal credit
limit & creates the additional tax savings of $797/year by utilizing the employer sponsored plan.
| How is this going to save my company any money? |
| |
W/ Plan |
W/ out Plan |
| Annual payroll |
$3,000,000 |
$3,000,000 |
| Pre-tax benefits |
$60,000 |
$0 |
| FICA taxable wages |
$2,940,000 |
$3,000,000 |
| Matching FICA taxes(7.65%) |
$224,910 |
$229,500 |
| Net tax saving |
$4,590 |
|
| How much are you going to save? |
|
| Annual employee contributions to group insurance |
$__________ |
FSA Account Option: # of employees ______ X 40% X average employees
deferral of $1,500
Annual employee FSA deductions |
$__________ |
| Total Annual Deductions |
$__________ |
| FICA Tax |
.0765 |
| Annual Tax Savings = FICA Tax X Annual Deductions |
$__________ |
| Less Administrative Costs* See Attached |
|
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Back to Participant Service
Center
Section 125 POP Plans
- Allows premiums paid by employees for insurance plan to be converted
to pre-tax
- Eligible premiums include health, dental, vision, and group term life
up to $50,000
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Healthcare Spending Account
- A plan that allows employees to reduce their salary to pay for expenses
not covered by their insurance such as co-pays, eye glasses, contact lenses, crowns, root canals, deductibles,
and co-insurance
- Employees elect annually the total amount to be set aside for their
families' unreimbursed expenses.
- Amounts are withheld in equal increments through payroll deductions
- Weekly claims processing prevents the employees from waiting long periods
for reimbursement.
- Reimbursements are made up to the maximum that has been elected for
the year
- Provides greater tax savings for all employees since most people do
not qualify for the federal deduction
- Provides a benefit for all employees, even those not participating in
the company sponsored medical &/or dental plan(s).
- Employers and employees save taxes
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Dependent Care Account
- Plan for employees to pay for dependent care expenses without taxes
being withheld
- Employees must chose to use the federal child care tax credit or the
company Dependent Care plan
- Provides $5,000 in benefits compared to the federal child care tax credit
which is $2,400 for 1 child and $4,800 for 2 children
- Employers and employees save taxes
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Premium Reimbursement Account
- Option for employees with individual health insurance policies to set
aside money in additional account similar to the dependent care account to pay the premiums on a before tax basis.
- Employees cannot go into a negative balance
- The premiums must be for an individual policy billed to the employee,
not COBRA or other group plan.
- Employers and employees save taxes
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Employer Contribution/Credit Plans
These flexible spending plans give employees the choice between different
types of benefits or cash to suit their individual needs
- Typically used by companies that currently pay 100% for benefits
- Transitions employees from high cost plan to less costly managed care
plans
- Eliminates "double coverage" by offering cash to those waiving
group coverage
How to set up a plan
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Services Provided by FlexAmerica
Custom plan design & document preparation
Weekly claims processing & reimbursement
Pre & post discrimination testing
Secure Internet Site Includes:
1. Account inquiry for employees
2. Plan administration and documentation for employers
3. Open Enrollment and new hire processing
Quarterly or monthly employer reports- Summer of '99 this will be on the Internet
Signature ready 5500 preparation
DRDental Administration
Toll free number for technical support
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Employer Q&A
Q. What are the maximums for the plan?
A. The maximum election for dependent care is $5,000 per year per family. The employer sets the maximum for the
medical expense account.
Q. What are the risks of the plan?
A. Employees who do not use their elected benefits by the end of the plan year lose their money, and if an employee
leaves with a negative account balance, the money can not be withheld. IRS regulations prohibit employees from
carrying a negative dependent care account balance.
Q. What are the government requirements?
A. The plan must file a 5500 annually and perform a discrimination
test on the total benefits and dependent care benefits. The
healthcare spending account is subject to COBRA.
Q. Are there any ineligible employees?
A. Yes, partners, 2% owners of "S" corporations, LLC members and in some cases their direct family members.
Q. Who are eligible employees?
A. Usually plans allow employees who are eligible to participate in their group health insurance plans to enter
flex plans. Additionally, affiliated employers and companies who have 80% common ownership must be included.
Q. What should our accounting/HR department expect to do?
A. Submit employee deferrals, new hires, and terminations to FlexAmerica on a regular basis.
Q. What happens with the money left at the end of the plan year?
A. Employees have until the end of a grace period, usually 90 days after the end of the plan year, to submit expenses.
Any remaining funds are retained by the employer. These funds may not be given back to the employees who have account
balances. Most employers use the money to offset plan costs.
Q. Can employees change their elections during the plan year?
A. Yes, but only if they have a change in status
Q. Are there any ineligible expenses?
A. Yes. The most common are: health clubs, spas, non-prescription medicine, weight loss programs, smoking cessation
program fees, hair transplants, teeth whitening, and cosmetic surgery.
Q. What should I expect as my average deferral from my employees.
A. FlexAmerica 's average deferral is $1,500 yielding savings of $120 per year on FICA costs for the employer.
Q. Are there any benefits I should not run through the plan?
A. Yes, Disability premiums paid by employees through a cafeteria plan convert the benefits from an after-tax to
taxable.
Q. Who is responsible for claims processing?
A. The employees send claims directly to FlexAmerica via mail or fax and the reimbursement checks are sent to the employees' homes
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Center
Contact Us: info@flexamerica.com
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