by admin | Oct 17, 2019 | Flexible Spending Accounts, Open Enrollment
As 2019 is nearing an end, many people are looking at this year’s medical expenses to plan for how much they should set back for next year. In investigating these expenditures, you may notice that you still have money in your Flexible Spending Account (FSA) for 2019. FSAs are unique in that any unused money from this plan year is forfeited once the new year begins. You definitely do not want to leave money in your FSA once 2020 rolls around. To help, we’ve compiled a list of some ways to use up your hard-earned FSA money that you may not have thought possible!
- Acupuncture
- Acne treatment
- Breast pump and supplies
- Chiropractic treatments
- Dental treatments—orthodontia, medically necessary water fluoride treatments, caps, fillings, x-rays
- Eyes—glasses, surgery, contact lenses
- First aid kit
- Genetic testing—including BRCA gene testing
- Motion sickness medicine
- Nutritionist consultations
- Sunscreen
- Smoking cessation program
- Vaporizer
- Vasectomy
- Weight loss programs/surgery
There are even some high-tech gadgets that may fall into the medically qualified expenses category:
- Acne light therapy
- Electronic stimulation instruments for pain
- Medically necessary mattresses
- Smart thermometers
Don’t leave your FSA money on the table in 2019! You have earned this money so make sure you use it to its full potential.
This list is not an exhaustive list of ways to spend your FSA money nor does it guarantee your insurance program considers these to be qualified expenses. Check with your HR department and insurance agent if you have questions about qualified expenses.
by admin | Oct 30, 2018 | Benefit Management, Employee Benefits, Flexible Spending Accounts, Group Benefit Plans
Trying to decide which of the many employer-sponsored benefits out there to offer employees can leave an employer feeling lost in a confusing bowl of alphabet soup—HSA? FSA? DCAP? HRA? What does it mean if a benefit is “limited” or “post-deductible”? Which one is use-it-or-lose-it? Which one has a rollover? What are the limits on each benefit?—and so on.
While there are many details to cover for each of these benefit options, perhaps the first and most important question to answer is: which of these benefits is going to best suit the needs of both my business and my employees? In this article, we will cover the basic pros and cons of Flexible Spending Arrangements (FSA), Health Savings Accounts (HSA), and Health Reimbursement Arrangements (HRA) to help you better answer that question.
Flexible Spending Arrangements (FSA)
An FSA is an employer-sponsored and employer-owned benefit that allows employee participants to be reimbursed for certain expenses with amounts deducted from their salaries pre-tax. An FSA can include both the Health FSA that reimburses uncovered medical expenses and the Dependent Care FSA that reimburses for dependent expenses like day care and child care.
Pros:
- Benefits can be funded entirely from employee salary reductions (ER contributions are an option)
- Participants have access to full annual elections on day 1 of the benefit (Health FSA only)
- Participants save on taxes by reducing their taxable income; employers save also by paying less in payroll taxes like FICA and FUTA
- An FSA allows participants to “give themselves a raise” by reducing the taxes on healthcare expenses they would have had anyway
Cons:
- Employers risk losing money should an employee quit or leave the program prior to fully funding their FSA election
- Employees risk losing money should their healthcare expenses total less than their election (the infamous use-it-or-lose-it—though there are ways to mitigate this problem, such as the $500 rollover option)
- FSA elections are irrevocable after open enrollment; only a qualifying change of status event permits a change of election mid-year
- Only so much can be elected for an FSA. For 2018, Health FSAs are capped at $2,650, and Dependent Care Accounts are generally capped at $5,000
- FSA plans are almost always offered under a cafeteria plan; as such, they are subject to several non-discrimination rules and tests
Health Savings Accounts (HSA)
An HSA is an employee-owned account that allows participants to set aside funds to pay for the same expenses that are eligible under a Health FSA. Also like an FSA, these accounts can be offered under a cafeteria plan so that participants may fund their accounts through pre-tax salary reductions.
Pros:
- HSAs are “triple-tax advantaged”—the contributions are tax free, the funds are not taxed if paid for eligible expenses, and any gains on the funds (interest, dividends) are also tax-free
- HSAs are portable, employee-owned, interest-bearing bank accounts; the account remains with the employees even if they leave the company
- Certain HSAs allow participants to invest a portion of the balance into mutual funds; any earnings on these investments are non-taxable
- Upon reaching retirement, participants can use any remaining HSA funds to pay for any expense without a tax penalty (though normal taxes are required for non-qualified expenses); also, retirees can use the funds tax-free to pay premiums on any supplemental Medicare coverage. This feature allows HSAs to operate as a secondary retirement fund
- There is no use-it-or-lose-it with HSAs; all funds employees contribute stay in their accounts and remain theirs in perpetuity. Also, participants may alter their deduction amounts at any time
- Like FSAs, employers can either allow the HSA to be entirely employee-funded, or they may choose to also make contributions to their employees’ HSA accounts
- Even though they are often offered under a cafeteria plan, HSAs do not carry the same non-discrimination requirements as an FSA. Moreover, there is less administrative burden for the employer as the employees carry the liability for their own accounts
Cons:
- To open and contribute to an HSA, an employee must be covered by a qualifying high deductible health plan; moreover, they cannot be covered by any other health coverage (a spouse’s health insurance, an FSA (unless limited), or otherwise)
- Participants are limited to reimburse only what they have contributed—there is no “front-loading” like with an FSA
- Participant contributions to an HSA also have an annual limit. For 2018, that limit is $3,450 for an employee with single coverage and $6,900 for an employee with family coverage (participants over 55 can add an additional $1,000; also, remember there is no total account limit)
- Participation in an HSA precludes participation in any other benefit that provides health coverage. This means employees with an HSA cannot participate in either an FSA or an HRA. Employers can work around this by offering a special limited FSA or HRA that only reimburses dental and vision benefits, meets certain deductible requirements, or both
- HSAs are treated as bank accounts for legal purposes, so they are subject to many of the same laws that govern bank accounts, like the Patriot Act. Participants are often required to verify their identity to open an HSA, an administrative burden that does not apply to either an FSA or an HRA
Health Reimbursement Arrangements (HRA)
An HRA is an employer-owned and employer-sponsored account that, unlike FSAs and HSAs, is completely funded with employer monies. Employers can think of these accounts as their own supplemental health plans that they create for their employees
Pros:
- HRAs are extremely flexible in terms of design and function; employers can essentially create the benefit to reimburse the specific expenses at the specific time and under the specific conditions that the employers want
- HRAs can be an excellent way to “soften the blow” of an increase in major medical insurance costs—employers can use an HRA to mitigate an increase in premiums, deductibles, or other out-of-pocket expenses
- HRAs can be simpler to administer than an FSA or even an HSA, provided that the plan design is simple and efficient: there are no payroll deductions to track, usually less reimbursements to process, and no individual participant elections to manage
- Small employers may qualify for a special type of HRA, a Qualified Small Employer HRA (or QSEHRA), that even allows participants to be reimbursed for their insurance premiums (special regulations apply)
- Funds can remain with the employer if someone terminates employment and have not submitted for reimbursement
Cons:
- HRAs are entirely employer funded. No employee funds or salary reductions may be used to help pay for the benefit. Some employers may not have the funding to operate such a benefit
- HRAs are subject to the Affordable Care Act. As such, they must be “integrated” with major medical coverage if they provide any sort of health expense reimbursement and are also subject to several regulations
- HRAs are also subject to many of the same non-discrimination requirements as the Health FSA
- HRAs often go under-utilized; employers may pay an amount of administrative costs that is disproportionate to how much employees actually use the benefit
- Employers can often get “stuck in the weeds” with an overly complicated HRA plan design. Such designs create frustration on the part of the participants, the benefits administrator, and the employer
For help in determining which flexible benefit is right for your business, contact us!
by Blake London
Originally posted on ubabenefits.com
by admin | Jun 13, 2018 | Flexible Spending Accounts, IRS
School’s out! Summer is here, and it’s the time of year when working parents have questions about using their Dependent Care Spending Accounts (DCSAs). Are summer camp expenses eligible? What about day versus overnight camps? Employers and benefit advisors want to be ready with answers about this valuable benefit program.
The following are the top summertime questions about DCSAs and reimbursable expenses:
1. What are the basic rules for reimbursable expenses?
Dependent care expenses, such as babysitting and daycare center costs, must be work-related to qualify for reimbursement. Work-related means the expenses are for the care of the employee’s child under age 13 to allow the employee to work. If the employee is married and filing jointly, the employee’s spouse also must be gainfully employed or looking for work (unless disabled or a full-time student).
In some cases, expenses to care for a disabled dependent, regardless of age, may be reimbursable. This article focuses on expenses for children under 13 since those are by far the most common type of DCSA reimbursement.
2. One of our employees and his family are taking a two-week vacation this summer, but his children’s daycare center will charge its regular fee. Are the expenses reimbursable even if the employee and spouse are off work?
Yes. In most cases, expenses are not eligible unless the dependent care services are necessary for the parents to work, but some exceptions apply. The IRS rules for DCSAs provide that expenses during short, temporary absences are eligible if the employee has to pay the child’s care provider. Absences of up to two weeks are automatically considered short, temporary absences. Depending on the circumstances, longer absences also may qualify.
3. During the school year, our employee uses her DCSA for her 10-year old’s after-school daycare center expenses. This summer, the child’s daycare will be provided by her 20-year old sister. If the older daughter bills for her services, are the costs eligible for reimbursement?
The answer depends on whether the employee or spouse can claim the older daughter as a tax dependent. If the older daughter can be claimed as a dependent, whether or not the employee actually claims her, she is not a qualifying dependent care provider under the DCSA rules.
If the older daughter cannot be claimed as a tax dependent, her charges for providing care are eligible expenses. The specific rule is that a child of the employee, whom the employee cannot claim as a dependent, may be a qualifying provider if the child is age 19 or older by the end of the year.
Note that the employee’s spouse or the child’s parent is never a qualifying provider.
4. One of our employees has to pay an application fee and deposit before her child starts attending a daycare center this summer. Are those expenses eligible for reimbursement?
Prepaid expenses are eligible for DCSA reimbursement, provided the costs are required in order for the child to receive care. In this case, after the daycare center begins providing care, the employee can be reimbursed for the application fee and deposit she paid. On the other hand, if the employee cancels and her child does not attend, then the application fee and deposit are not eligible expenses.
5. An employee will pay day camp expenses for his 8-year-old son and overnight camp expenses for his 12-year-old daughter this summer. Are both types of expenses eligible for reimbursement?
The day camp expenses generally are reimbursable. Expenses for overnight camp, however, are not eligible since overnight care is not work-related.
Under the IRS rules for DCSAs, expenses for food, lodging, clothing, education, and entertainment are not reimbursable. If, however, such expenses are small, incidental expenses that cannot be separated from the cost of caring for the child, they may be included for reimbursement. For instance, the day camp may include lunch, snacks, and some sports activities in its basic fee, which would be eligible for reimbursement.
6. An employee’s children go to private year-round schools. He pays tuition for one child’s grade school and fees for the other child’s nursery school. Are both types of expenses eligible for reimbursement?
Educational expenses are not reimbursable, unless the educational services are merely incidental as part of a child care service. Expenses to attend kindergarten or a higher grade are educational, so the older child’s school fees are not eligible for DCSA reimbursement. (Expenses for before- or after-school care, however, may qualify as reimbursable expenses.)
On the other hand, expenses for a child in nursery school, preschool, or a similar program for children below the level of kindergarten are expenses for care. Such expenses are not considered educational even though the nursery school may include some educational activities.
For detailed information about expenses eligible for DCSA reimbursement, the IRS provides a helpful guide: Publication 503 “Child and Dependent Care Expenses”. Have a fun summer!
Originally Published By ThinkHR.com
by admin | May 24, 2018 | Flexible Spending Accounts, IRS
Recently the Internal Revenue Service (IRS) issued its 2018 Publication 15-B, which informs
employers about employment tax treatment of fringe benefits.
Updates include:
- the suspension of qualified bicycle commuting reimbursements from an employee’s income for any tax year after December 31, 2017 and before January 1, 2026;
- the suspension of the exclusion for qualified moving expense reimbursements from an employee’s income for tax years after December 1, 2017 and before January 1, 2026 (with exceptions for active duty U.S. Armed Forces members who move because of a permanent change of station);
- limits on employers’ deductions for certain fringe benefits including meals and transportation commuting; and
- the definition of items that aren’t tangible personal property for purposes of employee achievement awards.
Originally Published By United Benefit Advisors
by admin | Dec 21, 2017 | Flexible Spending Accounts, Human Resources, IRS
As 2017 comes to a close, it’s time to act on the money sitting in your Flexible Spending/Savings Account (FSA). Unlike a Health Savings Account or HSA, pre-taxed funds contributed to an FSA are lost at the end of the year if an employee doesn’t use them, and an employer doesn’t adopt a carryover policy. It’s to your advantage to review the various ways you can make the most out of your FSA by year-end.
Book Those Appointments
One of the first things you should do is get those remaining appointments booked for the year. Most medical/dental/vision facilities book out a couple of months in advance, so it’s key to get in now to use up those funds.
Look for FSA-Approved Everyday Health Care Products
Many drugstores will often advertise FSA-approved products in their pharmacy area, within a flyer, or on their website. These products are usually tagged as “FSA approved”. Many of these products include items that monitor health and wellness – like blood pressure and diabetic monitors – to everyday healthcare products like children’s OTC meds, bandages, contact solution, and certain personal care items. If you need to use the funds up before the end of the year, it’s time to take a trip to your local drugstore and stock up on these items.
Know What’s Considered FSA-Eligible
Over the last several years, the IRS has loosened the guidelines on what is considered eligible under a FSA as more people became concerned about losing the money they put into these plans. There are many items that are considered FSA-eligible as long as a prescription or a doctor’s note is provided or kept on file. Here are a few to consider:
- Acupuncture. Those who suffer from chronic neck or back pain, infertility, depression/anxiety, migraines or any other chronic illness or condition, Eastern medicine may be the way to go. Not only are treatments relatively inexpensive, but this 3,000 year old practice is recognized by the U.S. National Institute of Health and is an eligible FSA expense.
- Dental/Vision Procedures. Dental treatment can be expensive—think orthodontia and implants. While many employers may offer some coverage, it’s a given there will be out-of-pocket costs you’ll incur. And, eye care plans won’t cover the cost of LASIK, but your FSA will. So, if you’ve been wanting to correct your vision without the aid of glasses or contacts, or your needing to get that child braces, using those FSA funds is the way to go.
- Health-boosting Supplements. While you cannot just walk into any health shop and pick up performance-enhancing powder or supplements and pay with your FSA card, your doctor may approve certain supplements and alternative options if they deem it to benefit your health and well-being. A signed doctor’s note will make these an FSA-eligible expense.
- Smoking-cessation and Weight-Loss Programs. If your doctor approves you for one of these programs with a doctor’s note deeming it’s medically necessary to maintain your health, certain program costs can be reimbursed under an FSA.
Talk to Your HR Department
When the IRS loosened guidelines a few years ago, they also made it possible for participants to carry over $500 to the next year. Ask Human Resources if your employer offers this, or if they provide a grace period (March 15 of the following year) to turn in receipts and use up funds. Employers can only adopt one of these two policies though.
Plan for the Coming Year
Analyze the out-of-pocket expenses you incurred this year and make the necessary adjustments to allocate what you believe you’ll need for the coming year. Take advantage of the slightly higher contribution limit for 2018. If your company offers a FSA that covers dependent care, familiarize yourself with those eligible expenses and research whether it would be to your advantage to contribute to as well.
Flexible Spending/Saving Accounts can be a great employee benefit offering tax advantages for employees that have a high-deductible plan or use a lot of medical. As a participant, using the strategies listed above will help you make the most out of your FSA.
by admin | Dec 5, 2017 | Employee Benefits, Flexible Spending Accounts, IRS
On November 2, 2017, House Republicans introduced a tax reform bill (H.R.1-115th Congress) called the “Tax Cuts and Jobs Act” that, if passed, would impact multiple aspects of the tax code. Many of these changes relate to employee benefit plans, particularly in relation to certain fringe benefits.
Dependent Care Accounts
A dependent care flexible spending account (DCFSA) is a pre-tax benefit account used to pay for eligible dependent care services. The IRS determines which expenses are eligible for reimbursement and these expenses are defined by Internal Revenue Code section 129 and the employer’s plan. Eligible DCFSA expenses include costs for adult day care centers, before and after school programs, child care, nannies, preschool, and summer day camp. Day nursing care, nursing home care, tuition for kindergarten and above, food expenses, and overnight camp are ineligible expenses. The employer determines the minimum election amount and the IRS determines the maximum election amount. The IRS sets the following annual contribution limits for a DCFSA:
- $2,500 per year for a married employee who files a separate tax return
- $5,000 per year for a married employee who files a joint tax return
- $5,000 per year for the head of household
- $5,000 per year for a single employee
The original version of the tax reform bill completely eliminated dependent care accounts. It is now reported that Representative Kevin Brady (R-Texas) has added an amendment to the bill that reverses the immediate repeal of DCFSAs, and would extend them for five more years.
Adoption Assistance
Employers may currently reimburse employees up to $13,570 (indexed) tax-free for qualified adoption expenses. This is eliminated in the bill.
Education Assistance
Employers may currently reimburse employees up to $5,250 on a tax-free basis for qualified education expenses. This is eliminated in the bill. Employers that are educational institutions can currently provide qualified tuition reductions to employees, their spouses, and dependents tax free, but this would be eliminated under the bill.
Employer Tax Deduction Impact
Under the proposed bill, employers’ corporate tax deduction credits for the following would be eliminated:
- Transportation fringe benefits
- On-premise athletic facilities
- Employer provided child care
The bill is now in markup, with the Ways and Means Committee working to draft a final bill for the House to vote on. If passed, it will be sent to the Senate to vote on.
By Danielle Capilla
Originally Published By United Benefit Advisors
