What are Flexible Spending Accounts (FSA)?

Section 125 of the Internal Revenue Code authorizes the establishment of cafeteria plans. These plans allow an employee to "purchase" certain nontaxable benefits in lieu of receiving taxable cash compensation. A certain type of cafeteria plan called a Flexible Spending Account enables employees to set aside money on a pre-tax basis to reimburse qualified medical and dependent day care costs.

Who can benefit from Flexible Spending Accounts?

The employer and employees can both benefit from a Flexible Spending Account. The Flexible Spending Account allows the employer to offer a new benefit for their employees without a large premium or plan contribution required. Employees have increased take home pay because pre-tax dollars are taken for the contribution, which in turn reduces their tax bracket and income taxes. Employers get a lower payroll tax as well.

Employees can get cheaper dependent care because it is not taxed while using a Flexible Spending Account. The Flexible Spending Account also helps employees throughout the year meet their expenses by regularly deducting directly from their pay.

What expenses can be included in a Flexible Spending Account plan?

There are many expenses that can be covered under a Flexible Spending Account. Some include:

How do Flexible Spending Accounts help your employees save money?

A Flexible Spending Account increases take-home pay because pre-tax money is used to pay for expenses that would otherwise be paid for with after-tax dollars. This is an example of how an employee saves:

Click here to calculate your own savings.

How does Nyhart establish and administer Flexible Spending Accounts?

In the consulting phase, Nyhart establishes program objectives and then develops plan design and benefit provisions based on those objectives. Nyhart also prepares materials to help employees understand their benefits and answers any questions that they may have.

Individual accounts are set up based on the participant enrollment and election information. These accounts are maintained and tracked on an individual basis. Reimbursement requests are processed and paid after receipts are checked to ensure all requirements are met. Employers are given the option of using a debit card plan instead of submitting paper claims.

What Procedure do employees follow when using a Flexible Spending Account?

Here is a set of sample steps to do when participating in a Flexible Spending Account:

There are a few important notes under this type of account:
At the end of the plan year, any pre-tax dollars remaining in the account are forfeited. The balance cannot be carried over or paid out in cash.
Expenses that are reimbursed from a Flexible Spending Account cannot be claimed as deductions on income tax returns.
Expenses must have been incurred during the plan year, or a specified period of time allowed after the plan year.

What is a Debit Card Plan

A feature in Flexible Spending Accounts is the debit card plan. Each emplyee is given a debit MasterCard that can be used to pay for their medical expenses without having to pay for the expense and then wait to be reimbursed. This makes Flexible Spending Accounts more convenient.

What is a Substaniation and when are they necessary?

When using the debit card plan, the employer sets up certain co-pays for prescriptions and office visits. If the debit card is used and the expense matches one of the established co-pays, the expense will be automatically approved. If the expense is not one of the established co-pays, a letter will be sent to the employee asking for a substantiation, or proof of services rendered and date of service. This form should be returned and proof of services should be attached so the expense will be approved.