Why do I need Flexible Spending Accounts?

Employees currently are allowed to deduct medical expenses on their federal tax returns. However, those expenses must exceed 7.5 % of their adjusted gross income. This is usually next to impossible for most employees who have even modest health insurance coverage. So how can you help your employees get those extra tax dollars? Set up a flexible spending account plan for your company!!

Solution

Internal Revenue Code Section 125 allows you, as the employer, to establish a written plan that would permit your employees to have their payments taken from each paycheck on a pre-tax basis. The contributions are exempt from Federal, FICA, and State taxes. The election is normally voluntary on the employee's part and if chosen, would immediately increase the employee's net or take home pay. This would include:

• Premium Only Plan
• Medical, Dental & Vision Expenses (includes Over-the-counter medications)
• Dependent Care Expenses
• Adoption Expenses
• Individual Health and/or Disability Premiums

The employer is now also exempt from any matching FICA taxes on the employee contributions as well. This benefit increases the employees take home pay while decreasing the employer's overall payroll costs!!!

How do these accounts work?

Let's take a look at these accounts one at a time.

Medical, Dental & Vision Expenses

Even with today's comprehensive medical plans, your employees can still have out of pocket medical expenses. Medical deductions on your federal tax are allowed but must only be for expenses in excess of 7.5% of your adjusted gross income. So for must people, that deduction never really comes into play. By establishing the Medical, Dental & Vision Expense Account, any employee with out-of -pocket expenses can have those dollars removed from their gross pay. As the expenses are incurred, they can submit those bills against their account throughout the plan year. The employee can receive their requested total annual amount at the time of claim request, even if their account balance (payroll deduction total) is less than the amount submitted. This gives employees the chance to get their expenses covered in full and payback the balance throughout the year. Some common expenses that can be paid tax-free are deductibles, co-payments, co-insurance payments, dental, orthodontics and vision expenses, to name just a few. The amount of expenses that an employee can deduct through the employers plan is up to the company. The employer is obligated to advance any money to the employee that is requested in advance of their payroll deductions. For this reason, most employers will place a reasonable cap on the amount allowed to go through the plan.

Dependent Care Expenses

Your employees can elect to deduct their dependent care expenses on their federal tax return, however they are limited to a credit against $3,000 for one child and $6,000 for two or more children. Daycare for a single child can be upwards of $5000 or more! Using the FSA Dependent Care Account is a benefit because tax filings never recover the FICA taxes ( 7.65 %) and participants won't have to wait to the end of the year when they file to get at their tax refund.

When an employer sponsors the account, an employee can ask for up to $5,000 dollars tax free for one or more children!! That is a tremendous difference. The amount is deducted from their gross pay, saving them on FICA, Federal and State taxes - a savings of over 30%. Plus, they get their tax savings every pay day, no waiting to the end of the year.

      Eligible Dependent Care Expenses are:

• Daycare Centers

• At home care
• Summer day camps
• Adult day care
• (Overnight camps NOT allowed)

Remember, the government doesn't just give away tax breaks. They must be able to use all the money they wanted to set aside or they don't get the unused balance back. Also, the account can be used as long as the daycare is necessary for the working parent or parents are working.  See our Dependent Care Documentation form for all rules applying to this account.

Now the beauty of the program is that you can help your employees get an increase in pay, (thanks to the government), so you're looking like a hero, plus you get a tax deduction on any amounts that they contribute to the plan!!

Individual Premium Expenses

Non-employer sponsored health premiums. Such premiums could include medical policies for dependent children at college, COBRA premiums, Medicare premiums.  Individual disability polices that you carry for yourself, a spouse or dependent can also be used under this account. (Benefit then becomes taxable).

Adoption Expenses

In addition, any employee who is in the process of an adoption can now have up to $10,960* provided tax-free towards any legal fees incurred. This applies to both domestic and foreign adoptions. *2006 IRS limit

So now you have achieved the perfect corporate harmony: happy employees who are more productive and that are voluntarily reducing your payroll taxes. Let's see how this works:

• Annual Savings to the Employee is $ 2016 !!!
• Annual Savings to the Employer is $ 400 !!!

TAKE ADVANTAGE OF OUR FULL SECTION 125 OUTSOURCING PACKAGE

Our Basic Services Include

• Internet Enrollment Capability (Flex plans)
• Account balance inquiries via Internet
• 24 hour Interactive Voice Response system for account balance inquiries (English & Spanish languages)
• Assigned knowledgeable & experienced plan administrator
• Compilation of enrollment data and generation of report for payroll
• Perform non-discrimination tests required by Section 125 to insure plan compliance
• Review of claims to determine eligibility of expenses
• Issue checks weekly or as frequently as the employer desires – check stubs include current account summary
• Management reports that provide data on plan utilization
• Assistance with new employee enrollments and other service as required throughout the plan year
• Cash flow management reports on the plan
• Bank reconciliation reporting package
• Consolidated year-end statements and required government filings
• Direct Deposit
• Automated Clearinghouse (ACH)
• Flex Debit Card
• Fax Claims confirmation to participants
• Online Over-the-counter medication discounts!

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