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 Health
Flexible Spending Account (FSA)
Health Flexible Spending Accounts, previously known as Medical Expense
Reimbursement Plans or Medical FSA plans allow employees to use pre-tax dollars
to pay out of pocket medical expenses not covered by health insurance. The
Health FSA reduces payroll taxes for both the employer and the employee making
it a popular benefit option. For the employee it's like getting a 30% discount
on medical, dental and vision care expenses.
Here's how FSA Plans work:
Each year the sponsoring employer allows an FSA open enrollment period where
each employee is given the opportunity to decide how much money they estimate
they'll spend in healthcare, dental and vision care expenses for the coming
year. Employees are encouraged to be conservative in their calculations so they
don't over estimate. Each employee then elects this amount to be divided into
regular payroll deductions and deposited into their Health FSA account.
Employees then turn in receipts for qualifying medical,
dental and vision care expenses to be reimbursed from their tax-free Health FSA
account.
Healthcare
expenses that do
qualify for reimbursement. See: IRS
Publication 502
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Only expenses not reimbursed by insurance can be claimed. |
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Healthcare reimbursement
limitation |
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The amount of your healthcare reimbursement election may not exceed
$3000.00 or
see your Plan Administrator for more information.
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Healthcare expenses that do not qualify for reimbursement. |
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 Section
129 Dependent Care Assistance Plan FSA?
Section 129 of the IRS Code allows employees to establish special accounts
called a Dependent Care Assistance Plan, or DCAP. A DCAP is a special Flexible
Spending Account that enables an employee to make special pretax elections from
their paycheck to pay for child and adult daycare expenses. The expenses must be
necessary to enable one or both parents or guardian to work, look for
employment, or go to school.
Dependent Care FSA Facts
Dependent Care Assistance Plans allows employees to be reimbursed up to
$5,000.00 annually for married couples, or up to $2,500.00 if the employee is
married filing separately.
Who is a qualifying dependent
for a DCFSA?
A qualifying dependent is a:
 | Dependent of the enrolled employee who is under age 13; or
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Dependent or spouse of the enrolled employee who is mentally or physically
incapable of caring for himself or herself, and who the employee claims as
a dependent on his or her Federal Income Tax return.
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To claim dependent care expenses, employees must meet the following
conditions:
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The employee must have incurred the expenses in order for them and their
spouse to work or look for work unless the spouse was either a full-time
student or was physically or mentally incapable of self-care.
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The payments for care cannot be paid to someone the employee can claim as
their dependent on their tax return or to their child who is under age 19.
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Your filing status must be single, head of household, qualifying widow(er)
with a dependent child, married filing jointly, or married filing
separately.
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The care must have been provided for one or more qualifying persons
identified on the form you use to claim the credit.
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You (and, if you're married, your spouse) must maintain a home that you
live in with your qualifying child or dependent.
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Can a Dependent Care FSA pay for a
babysitter in the employee's home rather than using a daycare facility?
Yes. Employees can include expenses paid to a babysitter if the services are
necessary in order for the employee and their spouse, if married, to work, look
for work, or for your spouse to attend school full-time.
Is day camp during the summer
qualified childcare?
Yes, if attendance at that camp allows you and your spouse to work, look for
work, or for your spouse to attend school full-time.
Is a private school tuition
payments qualified childcare?
No. School tuition is not childcare. But before/after school care is a qualified
expense. The employee's provider may be required to itemize the costs between
tuition and before/after school care.
Does the employee have to
submit an identical claim amount every week or can they set up an automatic
reimbursement?
Employees must submit a claim every time they wish to request reimbursement of
an expense. There is no automated process. Many individuals file claims monthly
to eliminate weekly claim submission. However, it truly depends on the
employee's specific needs and whether they can wait until the end of the month
for reimbursement or if they need to receive funds weekly. Regardless of the
amount on their claim they will only be reimbursed up to the amount in their
account at that time.
Can employees be reimbursed for
dependent daycare expenses once they have paid for them?
Eligible Dependent Care expenses are reimbursable when they are actually
incurred. Expenses are treated as incurred when the employee has been provided
with the service, not when they are billed or pay for the service.
Example: On March 1 you pay for the entire month’s
dependent daycare expenses. You can be reimbursed once the services have been
provided, not on March 1 when you paid for it. You can submit claims after
each week, every two weeks, or wait until the end of the month.
A Tax Identification Number
(TIN) is required on the claim form
If the employee's babysitter does not have a TIN, the employee must submit
his/her nine-digit Social Security Number with your claim form. If the employees
provider does not have a Social Security Number, the employee will be required
to submit a letter indicating that they have attempted to obtain a SSN or TIN
from the provider and they are unable to do so, as the provider does not have
one or will not provide it to the employee.
Are there limitations that
apply to DCFSAs on an aggregate basis?
The maximum amount an employee may elect to a Dependent Care FSA is set at
$5,000 by law. This $5,000 limitation is the maximum pre-tax benefit for all
dependent care programs, available to employees, including programs other than
FSAs. As a result, if an employee is receiving a childcare subsidy and the
combined benefit to that employee exceeds the $5,000 limit, both the employee
and the Agency will be responsible for tax on any aggregate amount that exceeds
$5,000 ($2,500 if married but filing separately).
Amounts exceeding the applicable limit could also happen if
both spouses work for employers offering an FSA program and both choose a
Dependent Care FSA, which combined, exceeds the applicable limit of $5,000
($2,500 if married and filing separately).
Dependent Care FSA versus Child
Care Tax Credits?
Depending upon your employees particular tax situation, it may be more
advantageous to your employees to use the tax credit rather than a Dependent
Care FSA exclusion. The amount of the DCFSA exclusion is limited to $5,000 per
tax year ($2,500 for married individuals filing separate returns). If the
applicable limitation is exceeded, the excess is included in income and taxable.
There is a Dependent Care Tax Credit Worksheet that can help you determine which
option is best for you.
You may also wish to consult a tax professional if you are
unsure of which option is more beneficial for your particular tax situation.
Dependent
Care expenses that do
qualify for reimbursement.
Expenses necessary for you and your spouse (if married) to be gainfully employed.
For more information click here
to see IRS Publication
#503.
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Nanny expenses, for services provided inside your home, are eligible
to the extent they are attributable to dependent care expenses and
expenses of incidental household services.
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Dependent care expenses incurred for services outside your home,
providing they are incurred for the care of a qualifying dependent
that regularly spends at least 8 hours per day in your home.
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Registration fees to a daycare facility are eligible as long as the
fees are allocable to actual care and not described as materials or
other fees.
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Nursery school expenses are eligible, even if the school also
furnishes lunch and educational services.
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Food and incidental expenses (diapers, activities, etc.) may be
eligible if part of dependent care charge.
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Expenses paid to a relative (e.g. child, parent, or grandparent of
participant) are eligible. However, the relative cannot be under age
19 or a tax dependent of the participant.
| FICA and FUTA payroll taxes of the daycare provider are eligible.
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Dependent care expenses incurred to enable the employee to find work
are eligible.
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The reimbursement may not exceed the smaller of the following
limits:
— The maximum allowed under the plan.
— $5,000 (if you are filing a joint tax return) and $2,500 if
separate returns are filed.
— Your taxable compensation (after all compensation reduction
elections).
— If you are married, your spouse's actual or deemed earned
income.
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Dependent Care reimbursement limitations |
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Dependent Care reimbursement may not exceed the smaller of the following
limits: |
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Dependent Care expenses
that do not qualify
for reimbursement.
(For additional information click here
to view IRS
Publication 503.) |
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See the
Tulalip Benefit Forms page to get signed up or get a claim form
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Peoples Benefit Solutions
LLC 
