The Flex Spending Account Benefits
Medical-Flex Spending Account
A Medical-Flex Spending Account (Med-FSA) allows employees to set aside pre-tax dollars into the Med-FSA to pay for their out-of-pocket medical, dental and vision expenses for themselves and their eligible dependents.
The list of eligible expenses is long and includes out of pocket expenses such as co-payments, deductibles, birth control, braces, chiropractors, crutches, eyeglasses, contact lenses and contact lens solutions, insulin and supplies, prescription drugs, bandages and over-the-counter medicines. (Rx Required)
A Dependent Daycare Account (DCAP) allows employees to set aside pre-tax dollars to pay for the care of a dependent while the employee (and spouse) work. For employees who care for young children or aging parents, a Dependent Daycare Plan can be a critical benefit.
For many employers, the tax savings of a Dependent Daycare Plan will more than cover the costs of offering the plan. When employees participate in the Flex Plan, they are reducing their taxable wages and paying for benefits from their pre-tax wages. This reduces their federal, state and Social Security (FICA) taxes and increases their take-home pay. The employer also pays less in taxes because, as employees reduce their taxable wages, the employer pays less FICA taxes.
Insurance Premium Account
As benefits costs continue to escalate, many employers provide employees with the option of paying for their share of health, dental and vision premiums on a pre-tax basis.
The Insurance Premium Account allows the participant’s portion of a benefits premium to be paid with pretax dollars, instead of with after-tax dollars. By means of a salary reduction agreement between the employer and the participants, the participants’ wages are voluntarily reduced by the amount of the premium payment that is due. By making pretax contributions that reduce the amount of taxable income, payroll taxes decrease and his or her take-home pay increases.
Other Benefits Options
Commuter Choice Plan
The Commuter Choice Plan is a tax savings employee benefit plan permitted under Section 132(f) of the Internal Revenue Code. The Commuter Choice Plan was authorized by Congress to help employees pay for the parking and transportation services they require in order to work.
When an employee participates in a Commuter Choice benefit, their contributions are deducted from the top of their paychecks during the year. The employee uses their Benefits Card to pay for eligible Mass-Transit expenses or sends in claims for their eligible Parking expenses and the benefits they use or the reimbursements they receive are tax-free. This increases their take-home pay because they pay less in taxes and it increases your bottom-line by reducing your payroll tax costs.
The Mass-Transit benefit allows employees to pay pre-tax for up to $270/month* of mass transit and eligible vanpool commuting expenses. Eligible expenses in this benefit are:
- Transportation by train, light rail or by a public or subscription bus, or;
- Transportation by eligible vanpool (an eligible vanpool is defined as a vehicle transporting 7 or more adults, including the driver, for the majority of the commute trip).
The Pre-Tax Parking allows employees to pay pre-tax for up to $270/month for eligible parking expenses:
- Parking at or near your primary, long-term business location, or;
- Parking at or near a “park and ride” or similar location if you use mass-transit.
*Subject to cost of living adjustments. The limits shown are effective 1/1/2020.
Health Reimbursement Arrangements
A Health Reimbursement Arrangement (HRA) is a very flexible benefit that allows you to design a benefit plan that meets your benefit and budget goals. HRAs are similar to the Flex Medical Spending Accounts and cover many of the same expenses. However, the HRA is employer funded and is not subject to Uniform Coverage. That means that the HRA can be designed to limit reimbursements to the contributions that the employees have accumulated, rather than the annualized benefit.
Why consider a Health Reimbursement Arrangement? An HRA program can help you:
- Reduce your employee benefit costs or replace other benefit programs
- Customize your benefits to meet the individual needs of your employee group
- Encourage employees to choose high deductible insurance plans
The beauty of the HRA is the flexibility it provides the employer in designing a benefit plan to fit your specific needs and goals. There are many design options, including the possibility for employees to submit expenses incurred after termination (spend-down account), and to allow expenses incurred in prior plan years to be reimbursed in subsequent plan years (assuming the employee was a participant).
There are three main categories of Health Reimbursement Arrangement programs:
A Gap HRA is an HRA designed to coordinate with an ACA-compliant group health plan to pay specific benefits, such as amounts applied to the deductible or coinsurance. If your group health plan has a $1000 deductible, a GAP HRA might be designed to pay the first $750 applied to the deductible.
An Excepted HRA is an HRA designed to provide Dental or Vision benefits, either in addition to your Dental or Vision Plans or as an alternative to those programs.
A Full HRA is an HRA designed to coordinate with an ACA-compliant group health plan but that allows the participant to pay for out of pocket medical expenses including copayments, deductibles, dental, vision, prescriptions, etc.