Flexible Spending Accounts
Employees represented by the AAUP-AFT, P&A, Operating Engineers, Supervising Engineers, Public Safety Officers, Michigan AFSCME Council 25-Local 1497, Local 517-M and Non-Represented Employees are eligible to participate in the WSU Flexible Spending Account program beginning January 1, 2005.
What is a Flexible Spending Account?
Flexible Spending Accounts (FSA’s) allow employees to deduct money from their bi-weekly paycheck on a pre-tax basis for payment of unreimbursed medical, dental, vision and hearing expenses and/or dependent care expenses. Employees may elect to participate only once per year and must continue participation for the entire calendar year. The amount contributed to the FSA is deducted each pay prior to the calculation of FICA, federal, state, and city taxes, thereby decreasing an employee’s taxable income.
IRS Publication 502 provides a listing of the types of unreimbursed medical and dental expenses that can be covered by a flexible spending account program.
What benefit is there in having a Medical Care Spending Account?
It is likely you will have some medical expenses that will not be covered by your health care insurance that you will have to pay for in the coming year. For example, you or your family may have medical expenses that are subject to deductibles and copayments under the Blue Cross Blue Shield or DMC Care medical insurance plans. Or, you may incur expenses that are not reimbursed at all, such as hearing aids or eyeglasses. Normally, you would pay for these expenses with after-tax income. Because taxes reduce the value of a dollar, you would have to earn considerably more than $100 to pay for $100 of expenses.
The Medical Care Spending Account benefit permits eligible employees to contribute pre-tax income to a Medical Care Spending Account. The Medical Care Spending Account will reimburse you on a pre-tax basis for your unreimbursed medical expenses. It is like getting a discount on these bills, so you don’t have to earn as much to pay for them.
How does the Medical Care Spending Account benefit work?
Once you have determined your annual predictable unreimbursed medical expenses for the plan year, you may elect to defer a portion of your salary into a Medical Care Spending Account maintained on your behalf.
You should take into account all health insurance deductibles and copayments, as well as uninsured medical, dental, vision, and hearing care expenses. Generally, the expenses covered must be "medically necessary" as determined by a physician. Reimbursement of expenses must be for expenses incurred (not billed or paid) during the applicable coverage period. Claims must be properly substantiated prior to reimbursement. Expenses deductible under IRS Code Section 213 may be reimbursed from a Medical Care Spending Account. For more detailed information on reimbursable expenses, you may call the Internal Revenue Service at 1-800-829-3676 for a copy of the IRS publication 502.
Some expenses which cannot be reimbursed include premiums paid for coverage for you or your spouse’s medical and/or dental plan; nursing care for a healthy infant; elective cosmetic surgery; domestic help for primarily non-medical services; recreation and health club fees; nutritional services, even if prescribed by a physician; dancing or swimming lessons; expenses not incurred during the plan year; marriage counseling; swimming pools; hot tubs; exercise equipment; vacations; or weight loss programs.
A new change this year in the IRS regulations is to allow the expenses for smoking cessation to be paid for through a flexible spending account.
How much may I contribute to my Medical Care Spending Account?
The maximum amount you may elect to defer to a Medical Care Spending Account for a year is $5,000. The minimum amount is $208.
What benefit is there in having a Dependent Care Spending Account?
If you have dependents, you may have expenses for dependent care. For example, you may have dependent care expenses for baby-sitters, daycare, or the care of a parent. Normally, you would pay for these expenses with after-tax income.
The Dependent Care Spending Account benefit permits eligible employees to contribute pre-tax income to a Dependent Care Spending Account. The Dependent Care Spending Account will reimburse you on a pre-tax basis for your eligible dependent care expenses. It is like getting a discount on these bills, so you do not have to earn as much to pay for them.
Since there is also an after-tax credit available to individuals filing federal income tax returns, your participation in a Dependent Care Spending Account must be weighed against the after-tax credit for which you may be eligible.
How does the Dependent Care Spending Account benefit work?
Once you have determined your annual predictable dependent care expenses for the plan year, you may elect to defer a portion of your salary into a Dependent Care Spending Account maintained on your behalf.
Reimbursement of dependent care expenses must be for expenses incurred (not billed or paid) during the applicable coverage period. Only dependent care expenses may be reimbursed from a Dependent Care FSA. Claims must be properly substantiated prior to reimbursement. The definition of a dependent for a Dependent Care FSA is any person who either:
- may be claimed as a dependent on your tax return and who is under age 13,
- may be claimed as a dependent on the your tax return and who requires full-time care because of physical or mental incapacity, or
- is your spouse and is physically or mentally incapable of caring for himself or herself.
Proof of the dependent’s age and tax status must be submitted with the enrollment form for the Dependent Care Spending Account. Proof of the dependent care provider’s tax identification number or social security number is also required before a claim will be processed.
How much may I contribute to my Dependent Care Spending Account?
The Dependent Care Spending Account maximum is dependent on your tax filing status:
If you are married and file a joint return, the maximum is the lesser of
- your earned income,
- the earned income of your spouse or
- $5,000.
(Verification that your spouse’s income exceeds $5,000 is required to enroll in a Dependent Care Spending Account.)
If you are married and file a separate tax return, the maximum is the lesser of
- $2,500 or
- your earned income.
If you are single and file head of household, the maximum is the lesser of
- $5,000 or
- your earned income.
The minimum amount is $208 annually.
If your spouse participates in a Dependent Care Spending Account through another employer and you file a joint return, the total amount both of you contribute cannot exceed $5,000. You are responsible for coordinating your contributions to a Dependent Care Spending Account with your spouse’s so the $5,000 limit is not exceeded.