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Flexible
Spending Account (FSA)
Questions & Answers
An IRC Section 125
Flexible Spending Account (FSA) offers a tremendous opportunity to reduce
your taxes by paying for unreimbursed eligible Health and Dependent
Care expenses using pre-tax dollars. When you use pretax dollars, you
will reduce your taxable income and have fewer taxes taken out of your
paycheck. Thus, you save federal, state (in most states) and Social
Security taxes on every dollar you deposit into your Flexible Spending
Account(s). We have highlighted the most frequently asked FSA questions
below, so you can understand the tax benefits of this Plan!
Other FAQs you may
want to view:
General
FSA Questions
What
taxes do you save when you participate in a FSA Plan?
If I participate in the plan,
will I reduce my social security benefits when I retire?
Can I change my elections in
the the section 125 plan at anytime during the plan year?
What happens to the funds I set aside?
How much money can I set aside on a pretax
basis?
What happens if there is money left in my account
at the end of the year end and I have no more reimbursable expenses?
What happens if I leave my employment
during the plan year end and have money in my account(s)?
What
taxes do you save when you participate in a FSA Plan?
|
Federal Income Tax |
|
10%
to 38.6% |
|
State Income Tax (California) |
|
1%
to 9.3% |
|
Social Security Tax (FICA) |
|
6.20%
to $84,900 |
|
Medicare |
|
1.45%
on all earnings |
|
State Disability Insurance (Calif.) |
|
.9% |
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If
I participate in the plan, will I reduce my social security benefits
when I retire?
Since your taxable
income will be reduced, your FICA contribution for Social Security
could also be slightly reduced. Usually the effect will not be great
over the lifetime of covered earnings. Check with your local Social
Security Office for possible impacts based upon your particular situation.
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Can
I change my elections in the the section 125 plan at anytime during
the plan year?
No. You cannot
change your elections during the plan year, except in the event of
certain specified status changes. The FAQs linked below discuss allowable
specific status changes:
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What
happens to the funds I set aside?
The funds you
set aside are deposited into two separate accounts -- one for dependent
care expenses and one for out-of-pocket eligible health care expenses.
The money targeted for your Health Care Spending Account is available
for immediate reimbursement up to your annual election amount. Dependent
Care Spending Account dollars are reimbursed as they accumulate in
your account; simply submit the required documentation. You cannot
transfer or "borrow" funds from one account to the other.
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How
much money can I set aside on a pretax basis?
You can set aside
a maximum of $5,000 per plan year (or the maximum contribution limit
set by your employer) for dependent care expenses if you are a single
parent or married and filing jointly; $2,500 if you are married and
filing separately. The legal maximum is also $5,000 per calendar year
in the event you have access to this Plan through your spouse or another
employer. For the out-of-pocket Health Care Spending Account maximum,
refer to your "Plan Highlights."
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What
happens if there is money left in my account at the end of the year
end and I have no more reimbursable expenses?
Under IRS regulations,
the money in your account will be forfeited to be used to pay for
administration costs of your employer. This is known as the "use
it or lose it" feature of a Section 125 plan. For this reason,
you need to make conservative estimates of your reimbursable expenses
prior to each plan year. You have a grace period at the end of each
plan year in which to file claims for expenses incurred during the
plan year. Note: "incurred" means an expense is
incurred when the participant is provided with the medical care that
gives rise to the medical expenses, or provided with the dependent
care services and not when the participant is formally billed or charged
for, or pays for the medical care, or dependent care services.
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What
happens if I leave my employment during the plan year end and have money
in my account(s)?
See your Human
Resources Department for specifics regarding COBRA continuation. If
you choose NOT to participate in COBRA, any remaining funds in your
Health Care Spending Account will be forfeited if you do not have
any eligible expenses incurred prior to termination. Your dependent
care expenses must be incurred after the date of your election but
prior to the end of the plan year. The IRS allows a grace period to
enable you to have all of your reimbursement requests received by
ProBusiness for processing. Refer to your "Plan Highlights"
for specifics.
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