McDermott & Miller: Benefit Plan Services, Cafeteria Plans

For Employees
• Basic Information
• FAQ-Employees
• Expenses that Qualify
•
• Print Claim Form
• Print Dependent Care Form 		For Employers
• Basic Information
• FAQ-Employers
• Expenses that Qualify
• IRS Publication 502
• IRS Publication 503
• Contact Us

Frequently Asked Questions - Employers

What is a Flexible Spending Account?

Tax savings for you and your employees.

Sometimes referred to as a cafeteria plan, flex plan, or a Section 125 plan, a Flexible Spending Account (FSA) lets employees set aside a certain amount of each paycheck into an account - before paying income taxes.

During the year, participants have access to this account for reimbursement of expenses - not covered by insurance - that they regularly pay for, such as:

When employees use tax-free dollars to pay for these expenses, they realize an increase in their spending power, and substantial tax savings.

The company saves too - about 8% (FICA match) on every dollar employees contribute to the plan.

What benefits can an employer include in an FSA Plan?

Employee-paid insurance premiums.
Payroll-deducted health insurance plan premiums and other employer-sponsored insurance coverages, including dental, disability, accident, and group-term life insurance premiums.

Medical expenses not covered by insurance.
Typical expenses include eye exams, eyeglasses, eye surgery, contact lenses and solutions, dental visits, orthodontic care, medical examinations, mental healthcare, chiropractic services, prescription drugs, insurance co-pays and deductibles, and expenses that are not reimbursed by health insurance.

Adult and child daycare expenses.
The cost to care for a dependent while the employee and spouse (if married) work.

Who Can Sponsor an FSA?

All of the above can save money on taxes by establishing an FSA plan.

While regulations prohibit a sole proprietor, partner, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation from participating in the FSA plan, they may still sponsor a plan and benefit from the savings on payroll taxes. "Employee" shareholders of regular corporations may also participate.

What happens to the money that an employee puts into the FSA Plan?

The employee's redirected salary is "banked" by the employer in an account maintained for the employee. Qualified expenses incurred by the employee are reimbursed tax-free from dollars "banked" in the account.

If the full amount is not used by the employee before the end of the plan year, the left over amount is forfeited to the employer. Every effort is made to educate the employees on this risk and to be conservative in their estimates of eligible expenses. As a result, it is our experience that forfeitures are minimal, if any.

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Expenses That Qualify

Insurance Premiums
Health insurance and other premiums
Healthcare Expenses
Co-pays
Prescription drugs and medical supplies
Dental services, orthodontics and dentures
Eyeglasses, contacts, solutions, and eye surgery
Hospital services, x-rays, lab fees, surgery, ambulance service
Chiropractic services
Annual examinations
Hearing aids, hearing aid batteries
Psychologists
Psychiatrists
Dependent Care Expenses
Adult and child daycare services

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Section 125 Plan - Experience and Qualifications

McDermott & Miller is a regional accounting firm with offices in Grand Island, Hastings, Kearney and Omaha. McDermott & Miller currently has over 70 employees and offers a wide range of services from employee benefit plan administration, including cafeteria plan and 401(k), profit sharing and money purchase plan administration, to business valuations, estate planning and business succession planning. We are a member of the private companies practice section of the American Institute of CPA's, and as such are required to complete a quality review called a peer review. McDermott & Miller, P.C. regularly consults with Section 125 Plan pioneers including EBIA, SunGard Corbel, and MHM Business Services.

Melodie Suarez is the Cafeteria Plan Advisor at McDermott & Miller, P.C. Melodie has been with McDermott & Miller since 2005.
1-888-MM-Plans or 308-382-7850
Fax: 308-382-7240
PO Box 1767 - 2722 So Locust St - Grand Island, NE 68802

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Frequently Asked Questions-Employees

What is a Flexible Spending Account Plan?

A benefit provided by your employer that lets you set aside a certain amount of your paycheck into an account before paying income taxes. Then, during the year you can be directly reimbursed from your account for qualified healthcare and dependent care expenses.

Why should I participate in the Healthcare Reimbursement Account when I already have health insurance?

This account is used to pay for expenses that are not covered by insurance. For example, your insurance may not cover annual physicals, co-payments, eye exams, eye surgery, glasses, orthodontics, prescription drugs, and hospital care.

If I set aside part of my pay, won't I make less money?

No. Your net take-home pay will increase by the amount of taxes you did not pay.

Can I change my contributions during the year?

Only if you have a change in status such as: marriage, birth, adoption, or a change in you or your spouse's employment status.

What if I currently take the dependent care credit on my annual tax return?

If your family income is over $20,000, you will most likely benefit from this plan rather than taking advantage of the current income tax credit. The amount you deposit in your Dependent Care Account reduces the amount, dollar for dollar, that you can claim as a credit on your tax return.

How do I get reimbursed for my expenses?

Once you have completed the Participation Form, you will receive a claim form and instructions on how to file your claim. Simply complete the form, attach a copy of the healthcare or dependent care bill, and mail or fax your form to your Plan Administrator. Within a short time, you will receive your reimbursement.

Do I have to wait for the money to be deposited in my account in order to make a claim for reimbursement?

The amount you set aside each year for the Healthcare Reimbursement Account is available to you at any time throughout the plan year. The amount available to you from your Dependent Care Account is the amount you have contributed to date.

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How do I know how much is available in my accounts?

Each time you receive a reimbursement, a statement (attached to your reimbursement check) will show the dollar amount you have set aside as well as the amount you have been paid to date. Or you may check your account online.

What happens to my accounts if I terminate my employment?

You will be able to request reimbursement for healthcare and daycare expenses that you incurred prior to your termination.

What if I don't use all of the money I set aside in my account(s)?

Carefully review your estimated expenses before making the decision to participate. Any contributions that are not used during the plan year may not be paid to you in cash or used in a later plan year.

What if I am not covered under my company's health insurance plan?

You and your family can still participate in the Healthcare or Dependent Care Reimbursement Accounts.

How do I benefit by participating?

Your biggest advantage is the tax savings. Every dollar you set aside in your account reduces how much you pay later in income taxes. Plus, you can be reimbursed for qualified expenses that you are already paying for!

Are there any negatives that I should know about?

Yes. Because you are not paying any social security tax on that portion of your income that has been set aside, your social security benefits may be slightly reduced. Most tax advisors would tell you that the benefit of saving taxes now will be far greater that the potential loss of social security benefits when you retire.