What is a Flexible Spending Account Plan?
The Flex Plan is a tax-savings benefit program sponsored by your employer that lets you pay for your benefits off of the top of your paycheck, before taxes are withheld. Your employer holds your funds until you submit claims for your qualified healthcare and dependent care expenses and you are reimbursed from your accounts tax-free. The Flex Plan increases your take-home pay because you pay less in taxes!
General Information About The Flex Plan
First, you will need to enroll in the Flex Plan and make your benefit elections. If you are a new employee or newly eligible for the plan, you must meet the eligibility, enrollment and plan entry requirements as described in the Summary Plan Description. Otherwise, you will have the option to enroll for each new plan year during the annual open enrollment period. Then, after you have made your elections and become a participant in the benefits you have chosen, your employer will direct part of your earnings each pay period to pay for those benefits. Your employer will use your Premium Only contributions to pay for your insurance costs, tax-free. Your contribution amounts are deducted off the top of your pay and are not subject to taxes. The employer holds your funds in general assets. When you are reimbursed from your Med-FSA and DCAP accounts, you are being reimbursed with money that has not been taxed. This increases your take-home pay because you pay less in taxes!
The IRS requires that your elections be enforced for the entire plan year unless you have a “Change In Status”. Changes In Status are situations defined by the IRS which allow participants to change their elections during the year. These situations may include birth, marriage, divorce, death, adoption and employment changes. The changes you make in your elections must directly relate to the event and you have a limited amount of time, usually 30 days, to make your election change request.
- If you do not use the funds you contributed during the year to be reimbursed for eligible expenses, any balance left in your accounts will be forfeited. It is important that you carefully estimate the expenses that you and your family will incur during the Plan Year.
- The amounts you contribute to each benefit can only be used for that benefit. For example, you cannot use your Med-FSA funds to be reimbursed for Day Care Expenses.
Your expenses must be incurred in the Plan Year during your “period of coverage” while you are an eligible, active participant in the benefit options you have elected. An expense is “incurred” when you have received the service, not when you pay the bill. Prepayments, payments on account and advance deposits are not eligible until you have received the eligible services and can provide documentation that you have received the services. For specific information about your Flex Plan and the eligibility requirements, the plan entry date, the claims filing deadlines and other important information, please refer to your Summary Plan Description.
Medical Flex Spending Account (Med-FSA)
The Medical Flex Spending Account (Med-FSA) allows you to set aside some of your pre-tax earnings to pay for your out-of-pocket medical expenses. When you elect to participate in the Med-FSA, a portion of your annual election is deducted pre-tax from the top of your paychecks during the year. You send in claims for your eligible expenses and you are reimbursed tax-free. This increases your take-home pay because you pay less in taxes!
Your election is your estimate of the out-of-pocket medical, dental and vision expenses of your family for the plan year. How much does your family spend for routine medical expenses, such as medications and doctor’s visits? Will you or your family need glasses, contact lenses or dental work next year?
Generally, expenses that are not medically necessary or are cosmetic in nature are not eligible for reimbursement. For example:
- Cosmetic services and products such as Botox®, Breast Augmentation, Propecia®, Rogaine® & teeth whitening.
- Missed appointment fees, late fees and finance charges.
- Personal use items are not eligible. This includes such expenses as clothing, earplugs, personal or feminine hygiene products, infant diapers, hand sanitizers, soaps, sunglasses (non-Rx), etc. In some cases, the excess cost of a special form may be eligible.
- Preferred Provider (PPO) discounts are not eligible.
- Prepaid medical fees such as “concierge,” “boutique,” and similar membership and retainer fees paid on a monthly, quarterly or annual basis are not eligible.
- Premiums, Insurance & Student Health fees.
- Prior balance and balance forward statements do not provide sufficient documentation.
- Toothbrushes and toothpaste are not eligible, even if prescribed to treat a specific medical/dental condition.
To be reimbursed from your Med-FSA, you must submit a claim form along with supporting documentation, such as copies of Explanation of Benefits (EOB) forms from your health plan or detailed bills prepared by your care provider. These supporting documents should include the name of the health care provider, the dates the services were provided, the type of services provided, and the name of the patient.
- If you purchase an over-the-counter product, the cash register receipt must clearly show the date of the purchase, the name of the product and cost of the item.
- Check copies, charge card receipts, and “prior balance” bills are not usually sufficient documentation.
- Pre-payments are not eligible until you receive the services. This includes pre-payments on Orthodontia contracts.
- You can only be reimbursed from the Med-FSA for expenses you actually owe and will not be paid by your insurance or any other benefit plan.
- Expenses must be incurred (services received) during the plan year while you are (were) an active participant in the Med-FSA plan. Expenses incurred after you terminate participation are not usually eligible. Please review the Summary Plan Description that your employer provided you for more information about the claims procedures.
Dependent “Day Care” Expenses (DCAP)
The Dependent Care Assistance Account allows you to set aside some of your paycheck each pay period for your work-related day care expenses. This amount is deducted from your paycheck each period, tax-free. During the year, you send in claims to be reimbursed from your account for your expenses, tax-free. This increases your take-home pay because you pay less in taxes.
Expenses that are for the care of your “qualifying dependent” while you (and your spouse) are working such as preschool, babysitters, day care centers, and day camps. If your care provider works in your home, you are required to pay and withhold taxes. If the day care center cares for more than six persons (other than persons who live there), the center must comply with state and local regulations.
A dependent that lives with you full-time (more than 8 hours each day) for whom you provide at least half of their financial support annually. This includes children age 12 or under, or a spouse, parent or child who is physically or mentally incapable of caring for him/herself.
Expenses that are not work-related. This includes expenses incurred while you (or your spouse) are not working due to illness, leaves of absence, vacations, etc. Other examples of expenses that are not eligible DCAP expenses would include overnight camps, educational expenses, kindergarten and incidental expenses such field trips, entertainment, food, and clothing if charged separately. Day care expenses are not eligible if paid to anyone you claim as a tax dependent or your child under age 19, even if they are not your tax dependent.
Yes. The limit is $5,000 if you are single or head of household. Married couples who file a joint tax return are limited to $5,000, while married couples who file taxes separately are limited to $2,500. Your DCAP contributions cannot be greater than your taxable income or that of your spouse, if married. If your spouse is a full-time student or disabled and unable to care for the children, you can contribute up to $250 per month to the DCAP with one qualifying dependent or $500 per month for two or more qualifying dependents.
Yes, the IRS requires that you complete Form 2441 with your annual tax return and that you report the names, addresses, EIN/Social Security numbers, and amounts paid to your day care providers. Your Employer is required by the IRS to report your pre-tax day care contributions on your W-2 as an information item. The IRS requires that you complete either Form 2441 with your annual tax return to report your DCAP Participation. Your Employer will report your DCAP contributions on your W-2 as an information item.
- This is a brief introduction to the Flex Plan and should not be considered tax or legal advice. Please contact your personal tax advisor regarding your personal situation.
- Your Flex Plan may not offer all of the benefits options shown here and the actual procedures and requirements of your Flex Plan may be different.
- For specific information about your Flex Plan, please refer to your Summary Plan Description (SPD). The SPD provides you with important information regarding the Plan including:
- plan year and enrollment periods
- benefits available under the plan
- contribution limits
- eligibility requirements
- plan participation requirements
- claims filing procedures and deadlines