The Flexible Spending Account (FSA) is an attractive option available to employees in a cafeteria plan. This type of employee benefit allows an employee to allocate a portion of his salary to pay for expenses that are qualified in the cafeteria plan, such as medical expenses and dependent care expenses. Generally, an FSA is a tax-advantaged employee benefit as it is not subject to payroll taxes, but it should also be noted that the funds not used by the end of the plan year will be forfeited.
Nowadays, employees are starting to appreciate the value of the FSA in their employee benefits package, whether offered by the employer or not. There are two basic flexible spending accounts in a cafeteria plan that employees can take advantage of: Medical Expense FSA and Dependent Care FSA.
Medical Expense
For medical expenses that are not covered by traditional insurance plans, the medial expense FSA pays for such expenses. The most common expenses include over-the-counter items, co-payments, coinsurance and deductibles for the employee’s health insurance plan.
Over-the-counter items are those that are not considered drugs or medicines, such as rubbing alcohol, bandages, first aid kits, etc. However, drugs and medicines can also be reimbursed under the FSA medical plan. The Patient Protection and Affordable Care Act (PPACA) mandated that such over-the-counter medications can be qualified for reimbursement as long as there is a doctor’s prescription, except for insulin. The PPACA has also made amendments to Section 125 that prohibits employees to elect an amount of more than $2,500 annually, starting on January 2013.
Dependent Care
This type of FSA is used for care expenses for dependents while the employee is at work. Dependent care can mean child care for children below 13 years old, but may also be for children above that age who are physically or mentally incapable of caring for themselves. Aside from that, dependent care FSA may also be used for adult day care for senior citizens, such as parents or grandparents living with the employee. To qualify for dependent care benefits, the dependent must be declared as a dependent on the employee’s federal tax return.
The downside is that the benefit cannot be used for summer camps and long term care for parents who are living elsewhere. Additionally, the benefit is federally capped at $5,000 annually per household. For the FSA to work both married spouses have to be employed and withdrawals can only be equivalent to the total amount contributed during the plan year. If the other spouse is unable to work due to disability or studies, the working spouse’s total benefit will not exceed annual income.
As flexibility in choosing the types of employee benefits is becoming more popular, an employee seeking a flexible plan ought to take serious thought about the benefits of availing a flexible spending account.
If you are in Calgary, look into a health insurance broker Calgary.
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