flexible expense account ( OJK ), also known as flexible spending arrangement , is one of a number of profitable tax accounts that can be arranged through a plan the cafeteria of an employer in the United States. OJK allows employees to set aside a portion of the income to pay eligible expenses as set out in the cafeteria plan, most often for medical expenses but often for dependent treatment or other expenses. Money deducted from the employee's salary to the FSA is not subject to a payroll tax, which results in salary tax savings. Prior to Patient Protection and the Affordable Care Act, one significant disadvantage to using OJK is that unused funds at the end of the plan year will be forfeited to the employer, known as the "use or lose" rule. Under the terms of the Affordable Care Act, plans may permit employees to carry up to $ 500 to the next year without loss of funds.
The most common flexible expense account types, FSA medical costs (also medical FSA or FSA health ), are similar to health savings accounts (HSAs) or health reimbursement account (HRA). However, while HSAS and HRA are almost exclusively used as a component of consumer-driven health care plans, medical FSAs are generally offered with more traditional health plans as well. In addition, funds in the HSA are not lost when the year plan ends, unlike the funds in OJK. The FSA paper or debit card form, also known as Flexcard, can be used to access account funds.
Video Flexible spending account
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Most cafeteria plans offer two major flexible expense accounts focusing on the cost of medical care and dependence. Some cafeteria plans offer other types of FSAs, especially if the employer also offers HSA. Participation in one type of OJK does not affect participation in other types of OJK, but funds can not be transferred from one OJK to another OJK.
FSA Health
The most common type of OJK used to pay for medical and dental care costs not covered by insurance, usually deductible, copayment, and coinsurance for employee health plans. Starting January 1, 2011, over-the-counter medicines are only allowed when purchased with a prescription, except for insulin. Free-sold medical devices, such as bandages, crutches, and eyeglass repair kits, may be permitted. Generally, the items allowed are the same as those allowed for medical tax deduction, as outlined in IRS 502 publications.
Prior to the enactment of Patient Protection and the Affordable Care Act, the Internal Revenue Service allows employers to enact every maximum annual election for their employees. Patient Protection and Affordable Care The Act amended Section 125 so that the FSA does not allow employees to vote for annual election beyond the limits set by the Internal Revenue Service. The annual limit is $ 2,500 for the first plan year commencing after 31 December 2012. The Internal Revenue Service will index the next year's plan limit for cost-of-living adjustments. For 2015, these adjustments increase the contribution limit to $ 2550. Employers have the option of limiting their employees' annual selection further. This change begins in the plan years beginning after December 31, 2012. Limits apply to each employee, regardless of whether the employee has a spouse or children. Non-elective contributions made by employers not deducted from employee salaries are not counted against limits. An employee employed by an unrelated employer may select an amount to the extent below each employer's plan. Limits do not apply to health savings accounts, health reimbursement arrangements, or employee portions of the cost of corporate sponsored health insurance coverage.
Some employers choose to issue debit cards to employees who participate in OJK. Participants may use a debit card to pay eligible FSA fees at the point of sale. Pharmacies and grocery stores that choose to accept debit cards as payment should prohibit transactions at the point of sale if the participant tries to pay for unqualified goods under the FSA. In addition, the employer still has to ask the employee to provide a detailed receipt for all charges charged to the debit card. The IRS allows an employer to override this requirement when someone uses a debit card at a pharmacy or a grocery store in accordance with the above procedure. The IRS also allows an employer to override this requirement when the amount charged to the debit card is a multiple of the joint payment of the group's health insurance plan. In many cases, FSA management companies would prefer the actual insurance Benefits Explanation (EOBs) clearly represent the patient portion of any medical costs, more than any other, more vague documentation. This requirement becomes less complicated as more insurance allows patients to search past EOBs on their website.
FSA's dependency treatment
The FSA may also be established to pay certain fees for caring for dependents while legal guardians are at work. While this is most commonly child-rearing, for children under 13, it can also be used for children of all ages who are physically or mentally incapable of self-care, as well as the care of the adult child for the parent who lives with that person, like a parent or grandparent. In addition, the person or persons in which the dependent treatment fund is spent should be claimed as being dependent on federal employee tax returns. Funds can not be used for summer camps (other than "day camps") or for long-term care for parents living elsewhere (such as in nursing homes).
Federal dependent FSA care is limited to $ 5,000 per year, per household. Married couples can choose each FSA, but their combined total election can not exceed $ 5,000. At the time of tax, all withdrawals of more than $ 5,000 are taxable.
Unlike medical FSAs, FSA-dependent care is not "funded early"; employees can not receive reimbursement for the full amount of the annual contribution on the first day. Employees can only be paid up to the amount they have deducted during the year of the plan.
If married, both partners must earn income for OJK Treatment Dependent work. The only exception is if couples who are not making money are disabled or students are full-time. If one partner earns less than $ 5,000 then the benefits are limited to whatever the partner earns. See IRS Form 2441 Part III for details.
Other FSAs
There are FSA plans for non-employer-sponsored premium replacement and reimbursement of parking and transit fees. Individual premium accounts allow employees to pay their partner's insurance with pre-tax money during other coverage are non-sponsored employers, considered individual plans, and directly billed to members or spouses. Parking and transit accounts allow employees to pay for parking fees or public transportation with pre-tax money up to a certain limit. Although not as common as the FSA listed above, some companies have offered adoption assistance through OJK. Also, one can not have FSA health care if he has a Higher Health Plan (HDHP) with a Health Savings Account (HSA). In cases where an employee has HDHP with HSA, they qualify for OJK Limited Liability (LEX) (also called OJK Limited Destination). These FSAs can be used to replace the cost of teeth and vision, regardless of the deductible plan; at the discretion of the employer, the eligible medical expenses incurred after the deductible is fulfilled may also be replaced.
Maps Flexible spending account
Period of coverage
The OJK coverage period ends when the plan of the year ends for one's plan or when the coverage of a person under the plan expires. An example of such an event is the loss of coverage due to separation from the employer.
This means that if, for example, a person is employed by a company from January to June and is covered by their cafeteria benefit plan (including OJK) during that time, but does not choose and pay for subsequent coverage under the plan (ie, COBRA), the period one's coverage is defined only as January to June, not January to December as people may think. In this example, all closed costs must be issued between January and June of that year.
Planning a grace period
In 2005, the Internal Revenue Service approved an optional 2½-month grace period for employers to use in their plans, enabling funds to be used up to 2½ months after the end of the plan year.
Withdrawal method
FSA debit cards are developed to eliminate "dual liquefaction", by allowing employees to access the FSA directly. It also simplifies evidentiary requirements, which demand the processing of labor-intensive claims. Debit cards also enhance the FSA's "pre-funding" medical effects. However, the evidentiary requirements themselves are not lost, and have even been extended by the IRS to the debit card environment; Therefore, the withdrawal problem is still fixed for FSAs. This withdrawal problem has led to creative solutions by e-commerce companies that create entire websites dedicated to FSA-eligible items and accept all OJK debit cards, and other websites that make up a small portion of their website dedicated to the FSA.
According to Celent, in May 2006, there were about 6 million debit cards in the market associated with FSA accounts, representing 25% of the participating FSA communities. Celent projects that FSA cards will increase the adoption rate of OJK. The average card enrollment rate is about 20% per May 2006. In 2010, it is projected this figure will increase to 85%.
Advantages and disadvantages
Pre-funding and risks borne by employees and employers
One consideration regarding the medical FSA is that the annual contribution of all participating employees is available at the start of the plan year, usually January 1, or after the first contribution to OJK is received by the OJK vendor, depending on the plan. Therefore, if an employee experiences a qualifying event during the first period, the entire amount of the annual contribution may be claimed against the benefits of OJK. If an employee is laid off, stopped, or unable to return to work, he does not have to pay back the money to the employer.
Employees contribute to the FSA bit by bit throughout the year (for example, 1/26 of the annual amount if paid every two weeks), but taken together, all employees of a company contribute a full average amount over a specified period, and there is no risk manifested by the employer. Moreover, instead of paying the payroll tax to the government, employers usually pay only a small administration fee for a $ 4-10 per month plan per participating employee. This amount is much less than the employer will pay for his share of the payroll tax. In addition, unused money at the end of the plan year (or grace period) is returned to the employer. This is estimated at up to 14% of total employee contributions, which can be a huge profit for the company's earnings.
If a company plans to lay off some employees, and announce the plan, then if some employees use all of their flexible benefits before termination, that could cause the company to replace the package. Usually, however, employers do not publicly disclose termination for certain employees with sufficient notice for employees to use the benefits available, and employees may actually lose their contributions other than dismissed.
An employee does not continue to contribute to the plan after termination. Thus, one can use the full amount on the first day of the year plan, end the work on the second day of the year of the plan, and the contribution will not be or can be ignored (for example, perhaps 1/26 in case of biweekly contributions). "Free" money is not taxable because the IRS views this plan as a health insurance plan for tax purposes. According to IRS 125, benefits received from health insurance plans are not considered taxable income.
The same reasons that make pre-funding possible benefits for an employee participating in the plan make them a potential risk for the entrepreneur preparing the plan. Employers must make a difference that employees spend on flexible expense accounts but have not contributed yet if other employees' contributions do not take into account the money spent. The number of employers lost by pre-funding may eventually be partial, total, or more than those made by employees who do not spend all the money in their OJK account at the end of the plan year and grace period (see above).
Over-the-counter medicines and medical items
Another feature of OJK introduced in 2003 was the ability to pay for over-the-counter medicines and medical goods (OTC). In addition to substantially expanding the reach of "FSA-qualified" purchases, adding OTC items makes it easier to "spend" the medical FSA by the end of the year to avoid the "use or lose it" rules.
However, re-verification is a problem; in general, OTC purchases require manual claims or, for FSA debit cards, submission of receipts after the facts. Most FSA providers require a receipt showing the full name of the item; the abbreviation for many store receipts can not be understood by many office claims. Also, some IRS rules about what is and does not qualify have proved somewhat mysterious in practice. The recently developed inventory approval information system (IIAS), separates qualified and unqualified items at the point of sale and provides for automatic proof of debit card.
List of Qualified Medical Items
The IIAS system refers to the FSA's eligible product master list of eligible sales points at the point of sale. The Special Interest Group for Standard IIAS (SIG-IS) maintains this feasibility list and updates it monthly.
The FSA Feasibility List includes items in the eligible health care product category determined by the IRS. The Health Savings Account shares a fair list of the same medical goods as the FSA. The full list of eligible items is only available to SIG-IS members, but the specific product eligibility may be publicly identified on websites such as FSAstore.com and OJK parts of walgreens.com.
According to section 9003 (c) of the Patient Protection and Affordable Care Act, as of January 1, 2011, medications should be prescribed for replacement.
Use or lose it
A potential weakness is that money should be spent "within the coverage period" as defined by the benefits of the definition of cafeteria plan coverage. This period of coverage is usually defined as "the period you cover" under the cafeteria plan during the "plan year." The "year of the plan" is usually defined as the calendar year, but may also include the grace period January 1 - March 15 of the following year. For example, the 2016 "plan year" (or "year of benefit") will run from January 1, 2016, to March 15, 2017, if the company offers a grace period.
Any remaining unused money at the end of the insurance period is canceled and can be applied for future administration plan expenses or can be allocated equally as taxable income among all plan participants; this is commonly known as the "use or lose it" rule. Under most plans, the "coverage period" generally stops at the time of termination of employee-initiated employee relations, unless the employee continues to cover the company under COBRA or other arrangements. The possibility, especially in the unexpected case, immediate dismissal, is that if the employee has unused contributions to the FSA and no additional claims are eligible during the coverage period, the employee will suffer additional contempt to "lose" the funds. On the other hand, if the salary tax kept on employee contributions exceeds the number of charred employees, then the employee still keeps the money as a whole.
The second condition is that all applications for refunds should be made by the date specified by the plan. If funds are lost, this does not remove the requirement to pay taxes on these funds if such taxes are required. For example, if one person chooses to hold $ 5,000 for child care and marry an unemployed partner, then $ 5,000 will be taxable. If this person does not file a claim on a specified date, then $ 5,000 will be forfeited but the tax will remain payable on that amount.
Also, the annual contribution amount should remain the same throughout the year unless there are certain qualifying events, such as the birth of a child or the death of a spouse.
Effective 2013 plan year, entrepreneurs can change their plan documents to enable participants to bring up to $ 500 of unused amounts to the next plan year. Doing so allows participants to spend the remaining amount of eligible medical expenses incurred during the next plan year. An unused amount accumulation does not affect the $ 2,500 annual bounds being indexed. The year of the plan may allow a rollover or grace period for unused amounts for the same plan year but not both. Carryovers only applies to eligible medical expenses; the plan may not allow participants to carry more than the unused amount for dependent care or other expenses. The accumulated amount does not reduce the maximum contribution of FSA participants for the next plan year. Therefore, a person who brings over $ 500 to the next plan year and who also donates $ 2,500 to their OJK for the year of the plan may be able to receive a replacement from his OJK of up to $ 3,000 of eligible medical costs during the year of the plan. In order for an individual to take over an unused amount, the plan must be changed to allow this type of diversion.
See also
- Health savings account
- FSA Eligibility List
References
External links
- IRS 502 Publications (2011), Medical and Dental Expenses - Describe what medical expenses are covered and which are not. (Although this publication will in general also apply to flexible healthcare account spending plans, some of the costs listed in the publication are not eligible in a flexible healthcare account plan, including long-term care insurance, insurance premiums, and fees paid in the current year for services in previous years).
- IRS 969 Publication (2011), Health Savings Account and Other Paid Health Plan - Publications from the IRS comparing this.
Source of the article : Wikipedia
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