SECTION 125/CAFETERIA PLANS
- Core Plans
- Modular Plans
- Employee Choice Of Benefits
- Spending Accounts Administration
- Preparation Of IRS Form 5500
- Non-discrimination Testing
- Eligibility Determination
- COBRA Administration
- Communications Materials
- Enrollment Meetings
- Plan Documents Available
- Toll-Free 800 Telephone Number
FLEXIBLE BENEFITS Q & A
WHAT IS A FLEXIBLE BENEFITS PLAN?
A Flexible Benefits Plan is a cafeteria plan pursuant to Section 125 of the Internal Revenue Code. In general, the Plan is funded on an employee salary reduction basis. It permits eligible employees to reduce their cash compensation and instead receive insurance premium pass-through, medical reimbursements and dependent care assistance benefits. These benefits are expected to be free from federal and state income tax, and not subject to federal social security (FICA and FUTA) withholding tax.
Under this Plan you can take advantage of three flexible benefits that can help you save taxes. It’s your choice!
1. Pre-tax Health Insurance Premium Deductions
2. Out-of-Pocket (unreimbursed/uncovered) Medical Expense Deductions
3. Dependent Care Expense Deductions
You never pay taxes on money you have deducted on a pre-tax basis.
WHAT CAN THIS PLAN DO FOR YOU?
· Reduce your taxable salary and increase your take-home pay
· Increase your spendable income.
· Allow you to afford better dependent care (work-related child care or elder care)
HOW CAN THIS PLAN HELP YOU SAVE MONEY?
Choose to have your premiums for employer sponsored health plans (generally medical, vision, and dental) deducted from your paycheck before taxes.
Choose to have money (in an amount you specify) deducted from your paycheck before taxes. This money will be set aside in a Flexible Spending Account (FSA) for you to claim for qualified expenses.
WHAT IS A FLEXIBLE SPENDING ACCOUNT (FSA)?
The Flexible Spending Account (FSA) allows you to pay medical and dependent care expenses with pre-tax dollars. As a result, you pay less Federal, State and Social Security taxes - and you have more take-home pay. There are two FSA accounts:
1. Unreimbursed Medical Expenses Account. This FSA may be used to reimburse medical expenses such as deductibles, co-payments and many other eligible expenses.
2.Dependent Care Account. In the FSA you are allowed to set aside up to $5,000 tax-free per plan year for eligible dependent care expenses.
HOW DOES AN FSA WORK?
You may choose one or both of the flexible spending accounts. To enroll, simply complete the Employee Enrollment Form. Once you have decided how much to put into each account, money is deducted from your paycheck each pay period on a pre-tax basis and put into the FSA account(s).
As you incur eligible expenses, you must submit a Request For Reimbursement Form with receipts attached in order to be reimbursed. For a claim to be eligible for reimbursement, the service must be provided in the plan year. Funds in the FSA accounts cannot be transferred between the accounts.
If an employee is participating in the Dependent Care Spending Account, the employee should consult their tax advisor to determine whether the tax credit or the pre-tax spending account is more beneficial for them.
HOW MUCH CAN YOU SAVE UNDER THIS PLAN?
It depends on how much money you have deducted before taxes from your salary and your income tax bracket. The more you have deducted from your salary before taxes, the less tax you will pay.
PLANNING THE USE OF YOUR REIMBURSEMENT ACCOUNTS
It is important to be conservative in estimating the amount of money you set aside.
Under current tax laws, if there is any money left in any account at the end of the plan year, it will be forfeited.
An employee should also be aware that the election is irrevocable for the plan year.
Once the payroll deductions have begun, the participant cannot change the amounts or drop out of the plan unless he or she terminates employment or has a “change in status”. A “change in status” includes:
1. Legal marital status events - marriage, divorce, death of a spouse, legal separation or annulment
2. Number of dependents - birth, adoption, death of a dependent
3. Employment status events - change in employment status of a spouse, strike or lockout, change in worksite, change in place of residence
A revocation and a new election must be consistent with a change in status.
HOW IS BENEFIT ADMINISTRATION CORPORATION (BAC) ASSOCIATED WITH THE PLAN?
BAC processes claims, maintains the individual participant account records and issues the reimbursement checks. In addition, BAC prepares periodic statements for each participant which reflect contributions made, claims paid and remaining balances. Consultants are available to answer questions at (559) 225-3030.
For more information about Cafeteria Plans, email firstname.lastname@example.org.