Dependent Care FSA (Employee)
qWhat is a dependent care FSA (DCA)?
aA DCA is a flexible spending account that allows you to contribute a portion of your paycheck before taxes are taken out to pay for qualified dependent care expenses so that you can work or look for work.
qWhy should I participate?
aSince contributions to the account are deducted from your paycheck before income taxes are assessed, your taxable income is reduced. Participants enjoy a 30% average tax savings on the total amount they contribute to the account.
qHow do I contribute money to my DCA?
aOnce you make your annual election during open enrollment, your employer will deduct this amount from your paycheck before taxes are assessed in equal amounts throughout the year.
qHow much can I contribute?
aThe IRS limits annual contributions to $5,000 on income tax returns for single or married filing jointly, and $2,500 for married filing separately.
qWho qualifies as a dependent?
aYou can use your DCA to pay for care for children under age 13 that you claim as dependents, as well as adults or other relatives that are incapable of caring for themselves (if you provide more than 50% of their support).
qWhat type of care is eligible?
aEligible expenses must be for the purpose of allowing you to work or look for work. Services may be provided at a child or adult care center, nursery, preschool, after-school, summer day camp, or a nanny in your home.
qWhat type of care is not eligible?
aCare expenses that are not eligible to be paid with DCA funds include care for a child over age 13, overnight camp, babysitting that is not work related, school fees for kindergarten and higher grades, and long-term care services.
qDo I have access to my entire DCA election amount at the beginning of the year?
aNo, you will only have access to DCA funds that have already been deducted from your paycheck.
qAre there any rules about who can care for my dependents?
aYes. You can not use funds to pay for care provided by a spouse, a person you list as a dependent for income tax purposes, or one of your children under the age of 19.
qHow do I use the funds in my account?
aIf you have a benefits debit card and your care provider accepts credit cards, you may pay directly from your account. Otherwise, pay out-of-pocket and then file a reimbursement claim with your expense documentation.
qWhat happens if I don't spend all of my DCA funds by the end of the plan year?
aIt is essential to estimate conservatively during elections. Any unused funds at the end of the plan year are forfeited, also called the use-it-or-lose-it rule.
qCan I change my election amount mid-year?
aTypically, you cannot change your contribution mid- year. However, if you experience a qualifying event, such as the birth of a new child, or if your child care provider significantly increases their rates, you may be eligible to adjust your contribution.
qWhat happens to my account if my employment is terminated?
aParticipation in the plan is also terminated. This means that only expenses that were incurred prior to your termination date are eligible for reimbursement.
qCan I still deduct dependent care expenses on my tax return?
aYes, but not the same expenses for which you have already been reimbursed. If your total expenses were $7,000 and you were reimbursed $5,000 from your DCA, you may only claim the $2,000 difference.
Flexible Spending Accounts (Employer)
qWhat's a FSA?
aA flexible spending account (FSA) is a benefit you sponsor for your employees. A flexible spending account lets your employees set aside pre-tax dollars to pay for eligible expenses like healthcare and/or dependent care, depending on plan type.
qWhat are the different types of FSAs available?
aHealthcare FSA With a healthcare FSA, your employees can pay for eligible healthcare expenses on a pre-tax basis, which reduces the amount paid for federal income tax, FICA tax and, as applicable, their state income taxes. Healthcare FSAs cover an extensive list of eligible, reimbursable expenses, as defined by IRS Code Section 213(d).

Dependent Care FSA Dependent care FSAs (DCAs) gives your employees the ability to pay for work- related dependent care expenses with pretax dollars, which allows them to save on federal income tax, FICA tax and, as applicable, their state income taxes. DCAs may provide your employees more tax advantages than the federal income tax credit.

Limited-Purpose FSA If you offer an HSA-compatible high-deductible health plan paired with a health savings account (HSA), you may offer only a limited- purpose FSA to those employees that have an HSA. The limited-purpose FSA is designed to complement the HSA and may be established to pay for eligible vision and dental expenses. Medical expenses are not permitted, because the tax-favored HSA is used to fund those costs.
qWho can offer an FSA plan?
aMost employers can offer an FSA, with a few exceptions. You may want to check with your legal or tax advisor regarding your specific situation.
qWho may contribute to an FSA?
aEmployees contribute to their own FSA through pre- tax salary deduction. You can also contribute money to your employees' FSAs.
qDo non-discrimination rules apply?
aYes. Based on requirements set by the Internal Revenue Service (IRS) Section 125 Cafeteria, flexible spending accounts cannot discriminate in favor of highly compensated or key employees. To ensure that employers are in compliance with these rules, non- discrimination testing is required annually.
qIs a domestic partner covered under an FSA?
aMedical expenses of a domestic partner who is a tax dependent of the employee are eligible for tax-free reimbursement from the employee's health FSA. Medical expenses for a domestic partner who is not the employee's tax dependent are not eligible for tax- free reimbursement from the employee's health FSA, even if the employer offers domestic partner health insurance benefits.
qWhat options does an employer have with unused FSA funds?
aEmployers can either use leftover funds to apply to administrative costs incurred during the plan year or give it back to employees by crediting it to employees' FSAs in the next plan year. The latter option can occur only if the funds are allocated on a uniform and reasonable basis to all of the FSA plan participants.
qIs the employer taxed on unused funds that are forfeited from an employee's FSA?
aNo, the employer is not taxed on unused funds.
qCan an employer charge an employee for the balance of a healthcare FSA if the employee leaves employment mid-year?
aNo. The Uniform Coverage Rule does not allow employers to charge an employee for the balance of an FSA if he or she terminates mid-year. The rule indicates that the maximum amount of reimbursement from a healthcare FSA must be available at all times during the coverage period. The uniform coverage rules prohibit an employer from designing a plan that ties the maximum amount of reimbursement at any particular time to the amount the employee has contributed. Similarly, the employee contribution payment schedule for the required amount for coverage under a healthcare FSA may not be based on the rate or amount of covered claims incurred during the coverage period. Employee salary reduction payments must not be accelerated based on the employee's incurred claims and reimbursements.
qHow can employers limit risk of loss associated with early terminations?
aEmployers assume a level of risk similar to that the employee takes under the use-it-or-lose-it rule. Potential forfeitures offset the risk of early termination losses for many employers. Flexible plan design options allow you to limit your risk.
Flexible Spending Accounts (Employee)
qWhat is an FSA?
aA healthcare flexible spending account (FSA) is an employer-sponsored benefit that allows you to set aside pre-tax dollars into an account to be used for eligible medical expenses.
qWhy should I participate in an FSA?
aContributions to the FSA are deducted from your paycheck on a pre-tax basis, reducing your taxable income. You can increase your spendable income by an average of 30% of your annual contribution with the tax savings.
qHow do I contribute money to my FSA?
aYour annual election will be divided by the number of pay periods in your plan year. This amount will be deducted from your paycheck before taxes are assessed.
qWho is eligible under an FSA?
aAn FSA covers eligible expenses for you and all of your dependents, even if they are not covered under your primary health plan.
qWhat expenses are eligible for reimbursement?
aHealth plan co-pays, deductibles, co-insurance, eyeglasses, dental care, and certain medical supplies are covered. The IRS provides specific guidance regarding eligible expenses. (See IRS Publication 502).
qHow do I determine the date my expenses were incurred?
aExpenses are incurred at the time the medical care was provided, not when you are invoiced or pay the bill.
qHow do I get the funds out of my FSA?
aIf you have a benefits debit card, simply swipe it at the register. Otherwise, just file a claim including the receipt documenting the type, amount and date. Once approved, your reimbursement check will be mailed or deposited into your bank account.
qWhat is a Letter of Medical Necessity?
aThe IRS mandates that eligible expenses be primarily for the diagnosis, treatment or prevention of disease or for treatment of conditions affecting any functional part of the body. For example, vitamins are not typically covered because they are used for general wellness, but your doctor may prescribe a vitamin to treat your medical condition. The vitamin would then be eligible if your doctor verified the necessity in treatment.
Commuter Accounts (Employee)
qWhat is a commuter account?
aA commuter account is an employer-sponsored benefit program that allows you to set aside pre-tax funds in separate accounts to pay for qualified mass transit and parking expenses associated with your commute to work.
qWhy should I participate?
aContributions to a commuter account are deducted from your paycheck on a pre-tax basis, reducing your taxable income. You can save an average of 30% on your eligible transit and parking expenses.
qWhat is a qualified mass transit expense?
aQualified expenses include transit passes, tokens, fare cards, vouchers, or similar items entitling you to ride a mass transit vehicle to or from work. The mass transit vehicle may be publicly or privately operated and includes bus, rail, or ferry.
qWhat qualifies as van-pooling?
aVan-pooling is not to be confused with carpooling. Van-pooling requires a commuter highway vehicle with a seating capacity of at least 7 adults, including the driver. At least 80 percent of the vehicle mileage must be for transporting employees between their homes and workplace with employees occupying at least one-half of the vehicle's seats (not including the driver's seat).
qWhat is a qualified parking expense?
aGet reimbursed for parking expenses incurred at or near your work location or a location from which you continue your commute to work by car pool, van- pool or mass transit. Out-of-pocket parking fees for parking meters, garages and lots qualify. Parking at or near your home is not an eligible expense.
qCan I use my commuter account for commuting expenses like tolls and gas?
aNo. Benefits may not be used for tolls, gas, mileage or other personal commuting expenses.
qCan I use my commuter account to pay for business or personal travel expenses?
aNo. You can only use commuter account funds to pay for your regular commute between your home and office on mass transit or van-pools.
qWhose commuter expenses are covered?
aQualified expenses include those incurred for your transportation between your residence and worksite. Expenses for your spouse or dependents are not eligible.
qIs there a limit to how much I can contribute?
aYes. Monthly limits are set by the IRS. Currently, contributions for transit and van-pooling are limited to $315 per month. Parking contributions are limited to $315 per month. Any monthly expenses above these limits cannot be exempt from taxes and cannot be applied to future months.
qHow does it work?
aYou authorize your employer to deduct a pre-tax amount for parking and/or van-pooling/transit from each paycheck, up to the IRS limits stated above. You then pay for the qualified transportation with your benefits debit card.
qCan I change my election?
aYes. You can make adjustments to your contribution, join, or terminate plan participation at any time.
qWhat happens if I don't use all of my funds at the end of the plan year?
aThe money left in your account may be carried over into the next plan year, if you continue to participate in the plan.
qDo I need to keep my receipts?
aYes. A valid receipt should have the merchant name, date, amount of expense and a description of the purchase for a transportation pass or parking. If you are not given a receipt, a signed claim form will be acceptable showing the amount of the expense that you incurred for that time period.
Health Savings Accounts (Employer)
qWhat is a health savings account?
aA health savings account (HSA) offers your employees a tax-advantaged way to save and pay for qualified out-of-pocket healthcare expenses. The employee must be covered by a high-deductible health plan to be able to take advantage of a HSA.
qWhat is a high-deductible health plan?
aA high-deductible health plan is health insurance with deductible amounts that are greater than standard insurance plans. The monthly premiums for this type of health insurance are typically less expensive because employees agree to take on more of the upfront cost of medical care. For 2018, these deductibles are at least $1,350 for individual or $2,700 for family coverage.
qIs this really less expensive for the business?
aYes. High-deductible health plan premiums are much lower than the typical HMO and PPO premiums. Many businesses are finding these health plans affordable for their companies and their employees.
qDo employees get a tax benefit from an HSA?
aEmployee contributions can be made to a HSA on either a pre-tax or post-tax basis. When employees make contributions pre-tax it is done through a Section 125 plan (also called a salary reduction or cafeteria plan), generally through direct deposit of payroll. If employees contribute funds on an post- tax basis, the amount can be deducted from their taxable income.
qDoes an employer have to make contributions to an employee's HSA?
aNo. Employers are under no obligation to make any contributions to their employees' HSAs. Many employers find that making a contribution to employees' HSA accounts may help improve adoption of HDHPs and HSAs, especially if they are transitioning from a more traditional type of health coverage.
qCan you combine an HSA with an FSA?
aYes. But only a limited-purpose FSA so as not to duplicate the coverage provided by the HSA. The limited-purpose FSA is designed to complement the HSA and may be established to pay for eligible vision and dental expenses. The FSA is not permitted to cover medical expenses because the tax-favored HSA is used to fund those costs.
qIs the employer responsible for reviewing medical expenses?
aNo, the employer is not responsible for substantiating the employee's HSA expenses. The individual account holder is responsible for determining that their account funds are being properly used and would be required to provide supporting evidence on the use of their funds if requested under IRS audit.
qHow often can an employee adjust their HSA contribution when contributing through a cafeteria plan?
aEmployees contributing to an HSA through a cafeteria plan may make adjustments to their contributions at any time, as long as the change only affects future contributions.
qAs an employer, am I responsible for my employees' HSA?
aNo. You do not own your employees' HSAs, nor are you responsible for how the funds are managed by the employee. The employee fully owns the contributions to the account as soon as they are deposited, just as with a personal checking or savings account to which you would deposit their compensation.
qDo I have to contribute the same amount to every employee's HSA?
aGenerally, employer contributions must be comparable, that is they must be in the same dollar amount or same percentage of the employee's deductible for all employees in the same "class". However, with the passage of a new law in 2007, higher contributions are allowed for non-highly compensated employees. In addition, you can vary the level of contributions for full-time vs. part-time employees, and employees with self- only coverage vs. family coverage. You do not need to consider employees who have not elected the high- deductible health plan coverage because they are not eligible for HSA contributions.
qHow are contributions treated for owners, shareholders, or partners?
aOwners and officers with greater than two-percent share of a Subchapter S corporation, or partners in a partnership or LLC, cannot make pre-tax contributions to their HSAs by salary reduction. Any contributions made to their HSAs by the company are taxable as income. However, they can make their own personal contributions to their HSAs and claim the contributed amount as a deduction on their personal income taxes.
Health Savings Accounts (Employee)
qWhat is a health savings account (HSA)?
aAn HSA is a tax-advantaged personal savings account that can be used to pay for medical, dental, vision and other qualified expenses now or later in life. To contribute to an HSA you must be enrolled in a qualified high-deductible health plan (HDHP) and your contributions are limited annually. The funds can even be invested, making it a great addition to your retirement portfolio.
qWhy should I participate in an HSA?
aFunds contributed to an HSA are triple-tax-advantaged.

1. Money goes in tax-free. Most employers offer a payroll deduction through a Section 125 Cafeteria Plan, allowing you to make contributions to your HSA on a pre-tax basis. The contribution is deposited into your HSA prior to taxes being applied to your paycheck, making your savings immediate. You can also contribute to your HSA post-tax and recognize the same tax savings by claiming the deduction when filing your annual taxes.

2. Money comes out tax-free. Eligible healthcare purchases can be made tax-free when you use your HSA. Purchases can be made directly from your HSA account, either by using your benefits debit card, ACH, online bill-pay, or check – or, you can pay out-of-pocket and then reimburse yourself from your HSA.

3. Earn interest, tax-free. The interest on HSA funds grows on a tax-free basis. And, unlike most savings accounts, interest earned on an HSA is not considered taxable income when the funds are used for eligible medical expenses.
qWhat expenses are eligible for reimbursement?
aHealth plan co-pays, deductibles, co-insurance, vision, dental care, and certain medical supplies are covered. The IRS provides specific guidance regarding eligible expenses. (See IRS Publication 502).
qDo I have to spend all my contributions by the end of the plan year?
aNo. HSA money is yours to keep. Unlike a flexible spending account (FSA), unused money in your HSA isn't forfeited at the end of the year; it continues to grow, tax-deferred.
qWhat happens if my employment is terminated?
aHSAs are portable and move with you if you change employment. Your HSA belongs to you, not your employer, just like your personal checking account.
qHow do I access the funds in my HSA?
aYour HSA is similar to a checking account. You are responsible for ensuring the money is spent on qualified purchases only and maintaining records to withstand IRS scrutiny. Payments can be made via check, ACH, online bill-pay, or debit card, depending on what is available to you.
qWhen must contributions be made to an HSA for a taxable year?
aContributions for the taxable year can be made in one or more payments at any time after the year has begun and prior to the individual's deadline (without extensions) for filing the eligible individual's federal income tax return for that year. For most taxpayers, the deadline is April 15 of the year following the year for which contributions are made.
qWhat happens to the money in my HSA if I no longer have HDHP coverage?
aOnce you discontinue coverage under an HDHP and/ or get secondary health insurance coverage that disqualifies you from an HSA, you can no longer make contributions to your HSA. However, since you own the HSA, you can continue to use the remaining funds for future healthcare expenses.
qIs tax reporting required for an HSA?
aYes. IRS form 8889 must be completed with your tax return each year to report total deposits and withdrawals from your account. You do not have to itemize to complete this form.
qCan I still deduct healthcare expenses on my tax return?
aYes, but not the same expenses for which you have already been reimbursed from your HSA.
qCan I withdraw the money for non-healthcare purchases?
aYes. If you withdraw the money for an unqualified expense prior to age 65, you'll be subject to your ordinary income tax, in addition to 20% tax penalty. You can withdraw the money for any reason without penalty after age 65, but are subject to applicable income taxes.
qCan I roll over or transfer funds from my HSA or Medical Savings Account (or Archer MSA) into an HSA?
aYes. Pre-existing HSA funds or MSA monies may be rolled into an HSA and will continue their tax-free status.
qCan I control how the funds are invested?
aYes. Once your HSA cash account balance reaches the minimum amount required by the custodian, you can transfer funds to an HSA investment account. You can choose from a selection of mutual funds and setup and allocation model for future transfers like you would for a 401k plan.
qCan I transfer funds between the cash and investment accounts?
aYes. You can transfer money between your HSA cash and HSA investment account at any time.
Health Reimbursement Arrangements (Employer)
qWhat is an HRA?
aHealth reimbursement arrangements (HRAs) are tax-advantaged accounts that are funded with employer dollars to pay employee expenses not covered by their health plan. The employer outlines what expenses will be covered in the HRA summary plan document within the limitations outlined by the Internal Revenue Service Publication 969. For example, an HRA could pay all eligible medical expenses, including premiums for health and long- term care insurance, or the HRA could be limited to cover only dental or vision expenses. Although an HRA can have an option to carry forward unused funds to the future or for retirement, an employee cannot take their HRA funds to a new employer.
qWhat are the benefits of offering an HRA to our employees?
aYou are most likely considering an HRA because you have decided to lower your health plan expenses by providing your employees a lower premium plan. The HRA will provide financial assistance to cover their eligible out-of-pocket healthcare expenses. An HRA offers a multitude of plan design options, allowing you to control the total cost of offering the account; and since HRAs are not pre-funded and are instead a promise-to-pay arrangement, you only pay when an employee files a claim.
qCan I offer an HRA alone without a health plan?
aIt was a growing trend in the recent past to offer employees an HRA to allow them to purchase conventional insurance in the individual, non-group market with pre-tax dollars. This approach is no longer possible under section 2711. Although further guidance has not been issued, stand-alone HRAs will not be considered to be integrated coverage that complies with the annual dollar limit required by the ACA.
qAs an employer, do I have to contribute the same amount to every employee's HRA?
aYes, according to Federal regulations, employer contributions must be comparable, that is they must be in the same dollar amount for all employees with the same category of coverage. You can vary the level of contributions for full-time vs. part-time employees. There may be other variations around comparability. Consult your broker, consultant, or tax advisor for additional information.
qCan owners or partners participate in an HRA?
aNo. According to IRS guidelines, anyone with two- percent or more ownership in a schedule S corporation, LLC, LLP, PC, sole proprietorship, or partnership may not participate. C-corporation owners and their families are eligible to participate in HRA plans because they are considered to be W-2 common law employees.
qWhen does the HRA begin to pay for an employee's expenses?
aThe employer has the choice of allowing the HRA to pay before the employee meets any deductible, or it can be set up so that the employee has to meet a certain amount of out-of-pocket expense before the HRA begins to pay.
qIs the HRA allocation based on a calendar year or a rolling plan year?
aAn HRA can be for a calendar year, plan year, or other defined periods. HRAs are flexible in design so that employers can offer an HRA that best complements their overall employee benefit goals.
qCan I, as employer, choose proration for new hires and family status change?
aYes. You can prorate contributions for new hires and family status changes that occur throughout the year.
qCan an employee covered by a spouse's plan still participate in your group's HRA?
aYes. However, there can be no "double dipping," or reimbursement from both plans for the same expense as explained in Revenue Ruling 2002-03 and 2002- 80. The spouse of an employee may also be covered by your group's HRA if they wish as part of family coverage.
qAre high-deductible health plans required in order to offer an HRA?
aNo. The HRA can be paired with any health plan; there are no limitations.
qCan the HRA allocation be set up on a 4-tier structure?
aYes. You may set up the HRA allocation for employee, employee+spouse, employee+child(ren), or family.
qCan I, as an employer, define the HRA rollover amount?
aYes. You choose how your "fund rollover" will be structured, which is then outlined in the Summary Plan Documents that are shared with employees.

Here's how HRA fund rollover typically works: at the end of the plan year, participants will have a certain amount of time ("run-out period") to submit claims for services incurred during the prior year. At the end of the run-out period, or a different date set by you, all or a portion of the participant's remaining funds may rollover to the next plan year or to a carryover account. You may opt to set the following rules:

1. A percentage of remaining funds may rollover, such as 50%. So, if there is a $512 balance on the fund- rollover date, you can rollover $256.

2. A maximum amount may rollover, such as $250. Taking the example above, only $250 would rollover of the remaining $512.

3. A percentage up to a maximum, such as 50% up to $250. Again, $250 would rollover, using the example above. If you had $300 remaining, then only $150 would rollover (50% of $300).

4. All remaining funds may rollover to the next plan year. In this case, all $512 would rollover.