Giving your employees the ability to put away pre-tax dollars for medical and dependent care expenses is a huge value-add when it comes to the benefits package businesses offer. A Flexible Spending Account (FSA) allows your employees to set aside a certain dollar amount from each payroll check and pay for qualified health care and dependent care benefits on a pre-tax basis. During the year, employees can use this account to pay for medical expenses that are not covered by insurance.
While your employees realize an increase in their spending power and a substantial tax savings, Flexible Spending Accounts can also save your company thousands of dollars a year on FICA taxes. When employees use tax-free dollars to pay for health care expenses through a flex account, your company saves about 8% (7.65% FICA match) on every dollar your employees contribute to the plan. Depending on the size of your company, offering a pre-tax health care option to your employees can give your business its own substantial tax savings.
Let’s take a look at 8 of the most frequently asked questions regarding Flexible Spending Accounts:
1. Can an employer fund an employee’s FSA account?
Yes, the funding can be made each payroll period, monthly, quarterly or annually. The contribution may be in the form of a match or fixed dollar amount. The employer’s contribution must be consistent to all eligible employees.
2. As an employer, if we have an HRA, can we still implement an FSA?
Yes, these benefits co-exist very well together. In no case may an employee be reimbursed for the same medical care expense by both an HRA and a Health FSA. If coverage is provided under an HRA and a Health FSA for the same medical care expenses, the Plan Document for the HRA may specify the ordering rules for these expenses.
3. Do all claims need to be substantiated?
Yes, an FSA may only provide benefits that reimburse expenses for medical expenses as defined in § 213 (d). Each medical care expense submitted for reimbursement must be substantiated.
4. Can you contribute to an FSA if you are contributing to a Health Savings Account (HSA)?
No, you are unable to contribute to a Health Savings Account if you are currently participating in a general-purpose Flexible Spending Account. You may participate in a limited-purpose FSA (for vision, dental and preventative services only) or post-deductible FSA and contribute to an HSA.
5. Is an FSA subject to COBRA continuation requirements?
Yes, if the Health FSA qualifies for the Special Limited COBRA obligation, then COBRA must be offered to an employee if the amount they have contributed plan-to-date is greater than the amount they have been reimbursed. If the Health FSA does not qualify for the Special Limited COBRA obligation, COBRA must be offered for all Flexible Spending Accounts and again offered at open enrollment. FSA COBRA premiums are equal to the employee’s monthly contributions plus an additional 2% administrative fee. This administrative fee is an optional fee, allowed by law, that an employer can charge a participant for administering the COBRA plan. In the event an employee fails to make premium payments, the employer has the right to terminate COBRA coverage.
6. Can all owners participate in the FSA Plan?
No, sole proprietors, 2% or greater S-Corp shareholders (includes family members) and partners in a partnership are not eligible to participate.
7. Are all employees eligible to participate?
Yes, however, the employer has the ability to exclude employees based on the number of hours worked, a minimum age requirement, a waiting period for newly hired employees and being members of a bargaining unit (certain family members may also be excluded).
8. Are there nondiscrimination testing requirements for an FSA? What about the IRS 5500 form?
Yes, there is an annual non-discrimination testing requirement that focuses on the Highly Compensated and Key Employees of the company. You only need to file a 5500 form if you have over 100 employees participating in the Health FSA at the beginning of the plan year.
How PrimePay Can Help
PrimePay helps with the administration of pre-tax benefits for your company, including HRAs, HSAs, and FSAs. When you choose PrimePay’s pre-tax benefit plan administration, you receive a dedicated service team, access to our support portal, automated claims processing, and a PrimePay debit card and mobile app.
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