Q&A on BMS LLC Section 125 Plans and Flexible Spending Accounts (FSAs)

 

What is a Section 125 Plan?

It is 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 use funds in the account to pay for qualified expenses with the untaxed dollars.

 

What’s the biggest benefit when I participate?

Your biggest benefit is saving on payroll withholding taxes. That’s because you’ll save $25 to $40 on every $100 you budget to pay for qualified expenses.

 

What expenses qualify for reimbursement?

Most qualified expenses are for goods or services that you’ll buy anyway. They include healthcare costs such as co-pays and doctors’ fees; over-the-counter drugs and prescriptions; dental and vision expenses; daycare expenses for dependent so you can work; and even adoption expenses.

 

How do I pay for qualified expenses? 

You will pay with your own money, and simply obtain a receipt from your provider.  We will then reimburse you for those expenses.  Or, if your Employer offers the Debit Card, then you receive immediate reimbursement. 

 

Will it lower my tax refund in April?

Taking advantage of the plan doesn’t change what you do at tax time. You actually get a lower “tax refund” on every paycheck after joining the plan, because you pay no tax on the money you set aside each pay period.

 

Do I need to file claim forms?

Yes.  You will be asked to complete a claim form, attach your receipts and then submit to BMS.  This can be submitted via fax, mail, or e-mail.  You can actually complete a claim form online.  Within a short time, you will receive your TAX-FREE reimbursement.   

 

How does money get deposited into my account?

Estimate your expenses.  Then set aside TAX-FREE money through regular payroll deductions.

 

How do I know how much is available for me to spend?

Your balance and other details are always online or by calling BMS LLC.

 

Must money be deposited in my account before I pay expenses to a claim?

NO. The entire annual amount you elect for the Health Flexible Spending Account (FSA) is available on the first day and throughout the plan year. However, only amounts contributed to date are available for Dependent Daycare.

 

I already have health insurance. Why should I participate in the Health FSA?

The Health FSA is used to pay for expenses not covered by insurance. These include co-pays, over-the-counter medications, glasses, contacts, orthodontics expenses and prescription drugs, just to name a few.

 

I don’t use my employers’ health insurance. Can I still save?

YES. You can still set aside money (before taxes are taken out) to budget and pay for qualified expenses. Remember, a qualified expense paid from this plan cannot be eligible for reimbursement from another plan.

 

I take a dependent care credit on Form 1040. Will this Dependent Care Benefit save more?

The more you earn, the more you’ll save. In addition, you’ll also save social security tax (FICA) with a Dependent Care Benefit (DCB). So don’t wait until April 15^th to take the credit. Now you can save taxes on every paycheck. Which is best for you?

 

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

No. For every dollar you set aside to pay qualified expenses, you save FICA, federal income tax and (where applicable) state withholding. Your net take-home pay will increase by the tax you save. Plus, where you pay a qualified expense or receive a cash reimbursement, it’s TAX-FREE.

 

Can I change my contributions during the year?

Only in certain situations. For Health FSA and Dependent Care Benefits, you can change your election if you have a change in status or a change in your employment or the employment of your spouse or a dependent.  Contact BMS LLC for more details.

 

What if I don’t use all of the money in my account?

You decide how much money to put into the plan and where and when to spend the money in your account. This is a great way to budget. A regular amount is deducted from your paycheck, but the entire annual election is always available for you to spend on healthcare from day one of the plan year.  Contributions not used during the plan year may not be paid to you in cash or used in a later year. Ask BMS LLC if your employer has implemented the 2 ½ month grace period that allows you extra time to spend your money.  Therefore, be sure to carefully budget and calculate your qualified expenses accurately.

 

What happens to my account if I terminate employment?

You may request reimbursement for qualified expenses incurred prior to your termination. Check your summary Plan Description for additional rights provided by your employer’s plan.

 

I am close to retirement – will it make my Social Security Benefits smaller?  Social security benefits are based on your lifetime earnings history. Your social security benefits may slightly reduced by participating in the plan. However, tax advisors will tell you that the tax savings you earn today far outweigh any social security benefits reductions you might incur in the future.

 

Is the Plan only for people who have children? 

Everyone has medical expenses, not just families. And now over-the-counter drugs may be reimbursed through your plan.  With the new IRS Revenue Ruling, over-the-counter drugs (cough syrups, pain relievers, allergy medicine, etc.) are considered qualified expenses.

 

My spouse has a plan at work.  Can I still participate? 

You may incur more medical expenses than your spouse’s plan allows you to elect. There is no IRS limit on the amount of medical expenses that can be reimbursed per household, so join your employer’s plan to save taxes on additional medical expenses.   But, you cannot be reimbursed under both plans for the same expense.

 

I really cannot afford to have any more money taken out of my paycheck.  What is the advantage? 

Did you know you could get money out of the plan before you put it in? By joining the plan, you can have the plan pay your health care expenses in full at the time of service even before you make your contributions.

 

Will participating in the Plan flag the IRS for an audit? 

The IRS is not looking for taxpayers that participate in these plans. In fact, federal government employees are currently covered by a similar plan.   If you use the plan properly for qualified expenses, you should have no worries.

 

Can I take a deduction for medical expenses on my Form 1040? 

Only after you spend over 7 ½ % of your adjusted gross income for these items. That’s because the first dollar you pay for un-reimbursed medical expenses is not deductible on your Form 1040. Though the plan, the very first dollar you spend will earn you 25% to 40% in tax savings.

 

Who do I contact if I have any questions regarding Section 125 Plans and FSAs?

You can contact a BMS LLC representative at sales@bmsllc.net directly or at (502)244-1161 for additional clarification of your questions!