Section 125 Flexible Spending Accounts (FSAs)

Report
Section 125
Flexible Spending Accounts (FSAs)
Educators Benefit
Consultants, LLC
A Third Party Administrator
7/17/2015
EBC For Training Purposes Only
1
Your 125 Plan


7/17/2015
A IRC 125 Plan is the only way an
employer can offer individual
employees a choice between taxable
and tax-free benefits
As an eligible employee you make an
election before the plan year starts
(Jan 1) as to what amount of your
salary will be assigned to each flex
category and reclassified as tax-free
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Your 125 Plan

You can use the funds you have elected
in the Flex categories to cover qualified
expenses incurred by you, your spouse
and your dependents

Federal definition of dependent

7/17/2015
IRC 152 and 105(b)
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Tax Savings Table
Annual Compensation
Daycare
Tom Flexes
Sally doesn’t Flex
$30,000
$30,000
5,000
Medical/Dental Expenses
2,500
Outside Health
1,200
TAXABLE INCOME
$21,300
$30,000
FICA/Medicare (7.65%)
1,629
2,295
Federal Tax (Assume 15%)
3,195
4,500
State Tax (Assume 6%)
1,278
1,800
Daycare
5,000
Medical/Dental Expenses
2,500
Outside Health
1,200
SPENDABLE INCOME
$15,198
INCREASED NET PAY
$2,493
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EBC For Training Purposes Only
$12,705
4
Your 125 Plan

Mandated Category

Premium Only Plans


Your share of the cost of your employersponsored health insurance plan and/or dental
Group Term Life Insurance

7/17/2015
On employee only up to $50,000 of coverage
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Your Flex Categories
The Voluntary Flex Categories Include:

Full-Use Medical FSA



Pays for out-of-pocket expenses not paid for by
your health insurance
Dependent Care FSA
Outside Health Insurance FSA

7/17/2015
Individually owned policies
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Full-Use Medical FSA
Pre-tax dollars may be used to pay for un-reimbursed
medical expenses not covered by insurance, such as:






Medical/dental plan deductibles and co-pays
Eye exams, contact lenses and eyeglasses
Hearing aids including batteries
Prescription drugs and medicines
Orthodontia
Medical supplies (e.g. contact lens solution,
peroxide, splints, etc.)
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EBC For Training Purposes Only
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Medical FSA-New Federal Law

Definition of Dependent Child



You can submit medical expenses for a
child that will not turn age 27 in the tax
year and receive tax-free reimbursements
from your Medical FSA
It does not matter if your child is married
If does not matter if your child is a student
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EBC For Training Purposes Only
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Dependent Child - Nuances



Insurance companies in MN are only following
the mandate and providing coverage to adult
children up to age 26
Coverage does not apply to child’s spouse or
children
A grandfathered plan is not required to
extend coverage to adult child who is eligible
for other employer-sponsored coverage until
2014
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EBC For Training Purposes Only
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Dependent Child Changes

Do not apply to reimbursements from
Health Savings Accounts

IRC 223 was not revised with respect to
this definition
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EBC For Training Purposes Only
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Medical FSA

Over-the-Counter Items

Drugs & medicines need prescription


7/17/2015
Letter of Medical Necessity will not work for
over-the-counter drugs and medicines an RX
number must be assigned
Letter of Medical Necessity will still work for
herbal supplements and vitamins (except multivitamins)
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Eligible Expenses

Potential for IRS scrutiny is likely to
vary according to whether an expense
is primarily medical, primarily personal,
or dual purpose.
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Eligible Expenses-Primarily
Medical
Liquid adhesive for small
cuts
Qualifying expense
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See Bandages.
13
Eligible Expenses: Dual
Purpose
Varicose veins,
treatment of
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Potentially qualifying
expense
Such expenses generally won't
qualify if the procedure merely
improves appearance and
doesn't meaningfully promote
the proper function of the
body or prevent or treat
illness or disease. May qualify
if the procedure promotes the
proper function of the body or
prevents or treats an illness or
disease. To show that the
expense is primarily for
medical care, a note from a
medical practitioner
recommending it to treat a
specific medical condition is
normally required. See
Cosmetic procedures.
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Eligible Expenses: Primarily
Personal
Toothpaste
Not a qualifying expense
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EBC For Training Purposes Only
Won't qualify even if a dentist
recommends a special one to
treat a medical condition like
gingivitis. Toothpaste is an
item that is primarily used to
maintain general health—a
person would still use it even
without the medical condition.
Thus, it is not primarily for
medical care. But topical
creams or other drugs (e.g.,
fluoride treatment) used to
treat a dental condition would
qualify, so long as they are
primarily for medical care. See
Cosmetics; Drugs and
medicines; and Toiletries.
15
Eligible Expense Table
EBC has a table on-line that lists
eligible expenses.



www.ebcsolutions.com
Click on Eligible Expenses table
ebc5508 is the access code
7/17/2015
EBC For Training Purposes Only
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EBC’s Prepaid Benefits
Card
Auto substantiation
(n.)
 The use of electronic
means to verify the
benefit eligibility of
card transactions
7/17/2015
Important
 Required by IRS
for Health FSA

Always keep
receipts
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Prepaid Benefits Card

Benefit of Card

Don’t have to wait for reimbursement
(you don’t pay twice)

7/17/2015
You may still have to submit receipt!
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Where Can Card be Used?


Stores that use an Inventory
Information Approval System (IIAS)
Stores that qualify under a
Merchant Category Code (MCC)
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EBC For Training Purposes Only
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How It Works:


Bring items to check out
Swipe Card for payment



Press “credit” not debit because no PIN is
required
Amount of Medical FSA items will be
deducted from your account
If you are purchasing other non-eligible
items clerk will ask for another form of
payment for those items.
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Prepaid Benefits Card

At Merchants using the Inventory
Information Approval System (IIAS)


Eligible expenses are deducted from
the account balance at the point of
sale
Transactions are fully substantiated –
no paper follow-up needed
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Where Else Can Card Be
Used?

Medical providers identified by a
merchant category code (MCC)


(E.g., physicians, dentists, vision-care
offices, hospitals, pharmacies)
These stores must meet the 90%
rule

90% of sales are for eligible medical
expenses
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Prepaid Benefits Card

Using the Card at 90% certified
merchants may require submitting
receipt

Copayment matching


Recurring expense logic


Copayment info entered into system - no
receipt required
Provide receipt one time and notify EBC that
this will be a recurring expense
After-the-fact substantiation and/or
retrospective

7/17/2015
Receipt required
EBC For Training Purposes Only
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If Receipt Required:

To achieve 100% IRS compliance




EBC sends cardholder letter/e-mail
requesting receipt
Cardholder sends receipt, which EBC
manually substantiates
If transaction not eligible or documentation
not sent, EBC may suspend the card and
request refund from cardholder
Card may be reinstated when receipts are
received or overpayment is returned to
account
7/17/2015
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“Benny Card”



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$20 per year paid by employee
Participant receives 2 Cards
Cards will be loaded with the Health
FSA election amount at the
beginning of the Plan Year
Visit www.sig-is.org to see a list of
participating merchants
7/17/2015
EBC For Training Purposes Only
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Dependent Care FSA

Dependent care and daycare expenses
are only eligible while you are gainfully
employed or while you are looking for
employment


Daycare expenses for dependent under age
13
Care for a dependent who is physically or
mentally incapable of caring for self
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Dependent Care



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
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Home daycare
Child daycare centers
Preschool
Nursery School
Day camp
Overnight Camp is NOT eligible
Kindergarten tuition is NOT eligible
7/17/2015
EBC For Training Purposes Only
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Dependent Care

If you terminate employment you
can continue to submit dependent
care expenses until your account is
exhausted.
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EBC For Training Purposes Only
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Outside Health & Dental
Insurance Premiums

Policies purchased by individuals
with after-tax dollars


Payroll premiums are not eligible
expenses
Supplemental policies including
AFLAC, dental, vision, etc.

7/17/2015
Long-Term Care is not an eligible
expense
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“Use It or Lose It”

Employee makes an election prior to the
beginning of the plan year


Conservatively estimate your expenses
You will make a separate election for each
category


You can’t move money around
You will receive a reminder from us 90
days before the end of plan year to use
your money up
7/17/2015
EBC For Training Purposes Only
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Elections Are Irrevocable
Your elections are irrevocable unless
you have a “Change Event”
Marriage or divorce
Birth, adoption, or death of
dependent
Termination of employment
Change in employment status

Has to impact eligibility

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Change Events (continued)

Change in Cost/Coverage would
allow you to change your election in
the following two categories:


Dependent/Daycare Care FSA
Outside Health Insurance FSA
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Change Events

When you experience a “change
event” or in advance of the “change
event” notify a representative at
EBC


Change is Status Form must be
completed; or
Separation/Termination Form must be
completed—It is a COBRA requirement
7/17/2015
EBC For Training Purposes Only
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FSA Annual Limits

Dependent Care



Medical FSA


Maximum is $5,000 if single or married
filing jointly
$2,500/each for married couple filing
separately
$2,500 per participant (not household)
Overall maximum you may flex in
plan year is $20,000 or 100% of
salary whichever is less.
7/17/2015
EBC For Training Purposes Only
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Filing Paper Claims


7/17/2015
Claims must be for services
provided within the Plan Year.
You have 6 months after the
end of the plan year to file
claims for services that were
incurred during the plan year
while employed.
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Filing Claims:

Date of Service
Type of Service
Cost of Service

What? When? How Much?


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Grace and Run-out Period


Grace Period: You have 2 ½ months
after your plan year ends to incur
and submit expenses from your
previous plan year
Run-out Period: You have 6 months
after your regular plan year ends to
submit expenses.
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Reimbursements
Full Service
EBC adjudicates claims daily.
Claims are paid Mondays,
Wednesdays and Fridays.
•
•
•
7/17/2015
Expect 3 to 5 day for funds to hit your
account add a couple of days if you are
getting a check via U.S. mail
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Reimbursements


Medical FSA category you can be
reimbursed up to your election amount.
Dependent Care and Outside Health
Insurance categories you can only be
reimbursed as much as you have had
deducted from your paychecks year-todate.
7/17/2015
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Enrolling is EASY!


Online enrollment instructions
provided on separate sheet.
https://www.yourplanacess.net/eb
c/
EBC has a table on-line that lists
eligible expenses.



www.ebcsolutions.com
Click on Eligible Expenses table
ebc5508 is the access code
7/17/2015
EBC For Training Purposes Only
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QUESTIONS?
Questions regarding claims and
eligible expenses can be directed to
EBC at:


Phone: 763-552-6053
Toll-free: 1-888-507-6053
7/17/2015
EBC For Training Purposes Only
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