Information on Flexible Spending Accounts (FSAs)

Flexible Spending Accounts (FSA) enables employees to set aside money, on a pre-tax basis via salary redirection, to pay for certain expenses. The two types of plans permitted under Section 125 are the Health FSA and Dependent Daycare Accounts.

Health FSA Account

Under a Health FSA Account, employees are reimbursed for eligible health care expenses that are not covered or reimbursed under the employer's health plan. Typically, eligible expenses include:

  • deductibles, co-payments and office visit co-pays
  • prescription drugs
  • dental expenses (cleanings, filings, x-rays, etc.)
  • orthodontic expenses (braces)
  • vision expenses (frames, contacts, eye exam, lasik, etc.)
  • hearing needs (hearing aids)
  • durable medical equipment (crutches, etc.)
  • over the counter drugs and medicines
  • and much more!

 Check out the Health FSA Account Worksheet for a listing of all the qualified expenses available to participants. 

Or you can review Publication #502.  IRS Publication #502 - Qualified Medical Expenses.  BE CAREFUL - not all of the qualified items are the same as Section 213(d).  (Use caution when reviewing.) 

(For more detail on eligible expenses, visit www.irs.gov and review section 213(d).)
Employees set aside an election amount up to an annual maximum determined by the employer.  This election is deducted from the employee's paycheck on a pre-tax basis, resulting in tremendous tax savings to the employee
(average tax savings between 25-40%!)

 

Dependent Daycare Account

The Dependent Daycare Account allows for an employee to be reimbursed for qualified "employment-related" dependent daycare expenses.  If in order for the Employee and the spouse to work they must use a Daycare provider, than they are eligible to participate.

A qualifying individual is:

  • A dependent age 13 or younger for whom an employee is entitled to a dependency exemption, and
  • the employee's spouse or dependent who is incapable of self-care

A qualifying provider is:

  • a licensed daycare provider
  • an individual who claims the payments for services as income (SS# must be provided for reimbursement)

Unlike the Health FSA where the limit is set by the employer, the limit for the Dependent Daycare Account is a statutory limit on the amount that can be pre-taxed through a Dependent Daycare Account. The limits are:

  • $5,000 if married filing a joint return
  • $2,500 if married filing separately as head of household or single

An employee should decide whether they should participate in the Dependent Daycare Account or take the dependent care tax credit on their personal taxes.   Reimbursement for the Dependent Daycare Account occurs only as it is deducted from the employee’s paycheck. They should consult with their CPA or tax advisor on this issue.

Check out the Dependent Daycare Account Worksheet for an idea of qualified expenses.
(For more detail on dependent daycare eligible expenses, visit www.irs.gov and review  IRS Publication #503.)
IRS Publication #503 - Dependent Expenses

What Option is Better?  Dependent Care Credit or Dependent Care FSA?

BMS LLC provides quality third party Claims Administration for Flexible Spending Accounts. The purpose is the keep the process simple and straight forward - easy for the employee to use.  

A few of the services that set BMS LLC apart:

  • Daily claim processing
  • Twice a week reimbursement of claims
  • Employees can choose between a personal check mailed directly to their home or they can take advantage of direct deposit of their reimbursement into their checking or savings account by completing the ACH Form.
  • Comprehensive activity statements sent with each request for reimbursement
  • Quality customer service only a phone call, fax or e-mail away
  • Access to individual claim accounts online (Employees can complete a claim online)
  • Claims accepted via fax, e-mail or regular mail.
  • Debit Card Available to qualified Employers.

Please review the Claim Form for submitting your FSA Claims to BMS LLC.

GREAT NEWS!  The Use It Lose It Rules still applies but the IRS now allows Employers to adopt the 2 ½ month grace which allows participants another 75 days after the end of their Plan Year to incur expenses to deplete any balances left in their previous Plan Year.  Contact claims@bmsllc.net for more information!