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Rules and Discrimination Testing
   
Purpose of Discrimination Testing: To encourage the establishment of FSA plans for all employees rather than a select few.

Eligibility:

The wait for eligibility cannot be longer than 3 years & cannot discriminate in favor of highly compensated


Contribution & Benefit Test:

Key employees cannot receive more than 25% of the non-taxable benefits
Dependent Care (2 Tests):

1. Average Benefit Test: the average benefit for non-highly compensated equals 55% of the average benefit for highly compensated

2. 5% shareholders & owners cannot receive more than 25% of the total Dependent Care Benefit
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Rules:  
  • Partners of a partnership and Owners in an S corporation cannot participate, nor can their spouse or children.
  • If you do not use your election by the end of the plan year the forfeited money is retained by the employer.
  • A claim can be paid for the whole annual election at any time in the plan year for the Flexible Spending Account.
  • Dependent Care Account claims can only be paid for the amount of money deposited in the account at that time.
  • Key Employees can only use 25% of the total benefits (collectively).
  • Premiums can be changed during the plan year when the renewal for the Health Insurance is at a different time than the open enrollment for the Flexible Spending Plan. (Only if the carrier remains the same)
  • You can only change elections in the Medical Spending Account and Dependent Care Account if you have a life status change:

    * Birth or Adoption of a child
    * Death of dependent or spouse
    *Change from part time to full time employment of you or your spouse (or vise versa).
    *Change in marital status

  • Filing of form 5500 and Schedule F are required for all FSA plans. They are due seven months after the end of the plan year.
  • There are some ineligible expenses such as teeth whitening and fitness related expenses. (Check with the www.irs.gov for a complete listing of ineligible as well as eligible expenses.)