Benefits: 125 Flex Spending Plan
- What is the flexible spending account?
- Why you should enroll.
- Health Care
- Dependent Care
- Who is an eligible dependent?
- Forfeiture rules: "Use it or lose it"
- Effect on other benefits
- Tax implications
- What if you change your mind?
- What happens if you retire or terminate employment mid-year?
- Worksheet: Help determine your spending per year (PDF)
The Flexible Spending Account (FSA) is a negotiated benefit for Orange County Community College employees. There are two parts to the FSA - the Dependent Care Account (DCA) and the Health Care Account (HCA). FSAs give you a way to pay for your dependent care or health care expenses with pre-tax dollars. FSAs are voluntary - you decide how much to have taken out of your paycheck and put into your DCA account and/or HCA account.
If you are paying for dependent care expenses in order to work, or have medical/dental/vision expenses that are not reimbursable under your health/dental insurance, you are paying for those expenses with dollars that have already been taxed. By enrolling in the DCA or HCA, you will pay those same expenses with whole dollars - before federal, state and social security taxes are taken from your salary.
The Flexible Spending Account is easy to understand and to use. You may choose to enroll in either the DCA or HCA or BOTH. This is how it works:
During the open enrollment period, estimate what your out-of-pocket health care expenses will be for the upcoming calendar year. Based on your estimate, decide how much of your salary you want to set aside in your HCS account. Fill out the enrollment form for the HCS account and return it to Human Resources before the open enrollment period ends. Effective January 2016 the minimum is $300, maximum is $2550.
Your elected deduction will be divided equally into the number of pay checks you will receive (usually 26). You will be notified by the payroll department as to what this amount will be. These deductions are made before your federal, state and social security taxes are calculated. The contributions to your HSC account are deducted tax-free from your gross pay.
When you have an eligible health care expense that is not covered by your health insurance, mail a Health Care Reimbursement Request form and your bill or receipt to Fitzharris & Co. You should receive reimbursement within two weeks. You can immediately submit an eligible claim with supporting receipts of insurance and ex
If you have dependent care expenses, decide how much of your salary you want to set aside in your DCA account (minimum $300, maximum for single parent is $2500, married parents $5000). As with the HCA account, a regular portion of this amount will be deducted from your biweekly paycheck. The money you set aside in your DCA account is also deducted tax-free from your gross pay.
When you have an eligible dependent care expense, simply fill out a Dependent Care Reimbursement Request form and mail it with the invoice or receipt to Fitzharris & Co. The DCA allows only for reimbursement up to the amount you deposited to the account at the time your eligible claim is received.
An eligible dependent is defined as a) a dependent of the participant as defined by IRS (for DCA under the age of 13) and for who the participant is entitled to a deduction; b) your spouse who is physically or mentally not able to care for themselves; or c) a dependent who is physically or mentally not able to care for themselves and for whom you can claim an exemption.
Because of the tax advantages of the Flexible Spending Account, the Internal Revenue Service (IRS) has strict guidelines for its use. One of these guidelines is commonly known as the "Use It or Lose It" rule. Put simply, if you contribute pre-tax dollars into your DCA or HCA Account and then do not have enough eligible expenses during the calendar year to equal the amount you contributed, you will loose the balance remaining in your account when the Plan Year ends. That is why it is important to plan carefully before deciding how much to contribute. With careful planning, you can minimize the risk of losing any of your contributions. According to the IRS, all unused funds must be returned to the employer. The unused funds can be used to defray the cost of administering the program or placed back into a program that all employees are eligible for. Participants have until March 31st of the following year to submit for any eligible un-reimbursed expenses. But remember - if you plan properly, you are unlikely to forfeit any of your funds.
Contributions to the HCA and DCA accounts may reduce your social security taxes. If so, based on current social security law, social security benefits at your retirement age may be slightly less as a result of your participation in the HCA and DCA accounts. The effect will be minimal and would likely be offset by the amounts saved in taxes today. The Social Security Administration uses the highest 35 years of salary earned before retirement to calculate your social security benefit. If you are concerned about this, contact the Social Security Administration at 1-800-772-1213.
You need to determine whether taking tax deductions is more beneficial that using the HCA and/or DCA accounts. According to the IRS, only medical and/or dental expenses that exceed 7.5% of your adjusted gross income can be deducted from your income taxes. Most people do not have expenses high enough to qualify for this deduction. For work-related dependent care expenses, the tax credit amount is determined by applying a percentage to your total dependent care expenses. In addition, money set aside through your HCA and/or DCA account is exempt from FICA taxes. This exemption is not available on your federal income tax return. You should seek the advice of your accountant on how this effects you.
You may not change your mind once the Plan Year begins, but you can decide not to join next year. There are certain situations, called changes in status, and if they occur in your family during the Plan Year, you can make a change - you can either start, stop, restart, or change your deduction amounts. Examples of a change in status are: Death, Divorce, Birth, Adoption, Unemployment, or significant health insurance change. Please see the attached Change in Status form.
You will be notified by Human Resources of your rights under COBRA. At that time you can decide to have the balance of your pledge deducted from your last paycheck, you can arrange to make monthly contributions, or forfeit the balance in your accounts. If you have sufficient expenses to cover the balance in your accounts and they were incurred prior to your termination/retirement date, those expenses maybe submitted for reimbursement up until 90 days beyond the end of the plan year (December 31).
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