Flexible Benefits
A Flexible Benefits plan pays out-of-pocket health care and dependent care expenses with pre-tax dollars.
Cambridge provides clear info on the complexity of Flexible Benefit Plans
A Flexible Spending Arrangement (FSA)
An FSA provides a method for an employee to pay for dependent care or medical and dental expenses with pre-tax dollars. Through payroll deductions an employee may contribute to one or more separate accounts before any withholding for taxes.
As eligible expenses are incurred, the employee is reimbursed from the proper account. Health care and dependent care accounts are set up separately and reimbursements are distributed accordingly.
The IRS has strict rules that govern these plans and require careful planning before participating.
FSA Benefits for the employer
- Provide employees a way to pre-fund dependent care, medical and dental expenses
- On average an employer can save $300 per employee in payroll taxes
- Assist employees with a tool to manage additional out-of-pocket expenses
- Gain flexibility in benefit planning
- Increase employee morale and retention
- Enhance status as an employer
FSA Benefits for the employee
- Convenient payroll deductions allow employees to budget for medical and dependent care expenses
- On average Employees save $ .30 on every dollar pre-taxed
- All contributions to an FSA are done on a pre-tax basis
- Allows an employee to prepare for unexpected out-of-pocket expenses
- Advanced distribution of funds when necessary
FSA Plans and Facts
Health FSA
Reimbursements are available to help cover annual deductibles and co-payments, as well as most medical expenses above the allowed amount available through the employers medical/dental benefits plan. Specific eligible expenses will vary depending upon individual plan provisions.
Dependent FSA
To qualify for reimbursement, dependent care expenses must be necessary for employment for both the dependent employee and an employee's spouse if married. The maximum amount that can be funded through the Dependent FSA is $5,000 annually. Only individuals who are less than 13 years of age or mentally incapable of caring for themselves qualify as a dependent.
Individually Owned Insurance Plans
For premiums for individual or family member's insurance plans (subject to interpretation), such as cancer insurance, disability and others.
Tax Savings
The employee realizes tax savings by making contributions to their FSA accounts with pre-tax dollars. The employer does not pay social security and unemployment taxes on salary reduction contributions. These tax savings may offset the plan's administrative costs.
Legal Facts
The IRS requires FSA plans to contain an element of risk. Therefore amounts contributed but not used by the end of a plan year are forfeited back to the employer. This is known as the "Use it or Lose it" concept. This concept applies to medical expense reimbursement FSA's.
