Q&A: Flex

Question and Answers

Administrative

• An employee's spouse is enrolled in FSAs where he works. Can this employee still participate in our FSA plan?
• Why does the participant's Direct Deposit signup form authorize both deposits and reversals?
• Why is a fee charged for Non-Participants in some FSA Plans?

Claims

• Can cancelled checks or VISA slips be used with a claim for FSA reimbursement?
• Is reimbursement of an FSA expense based on the date incurred or date paid?
• What are the "Top 4 Claims Problems"?
• What Happens When a Claim is Denied?
• What Makes an FSA Claim Valid?

Compliance

• Are flex plans affected by COBRA rules?
• Are flex plans affected by FMLA (Family Medical Leave Act) rules or others types of leaves?
• Can an employee pre-tax the COBRA premium for a child who ceases to be a dependent?
• How do HIPAA Privacy standards affect Flexible Benefit Plans?
• How does COBRA affect the Medical FSA when employees terminate?
• What continuation options can or must be offered to terminating employees with positive FSA balances?
• What IRS rules apply to debit or credit cards used within a flex plan?
• What rules govern the electronic distribution of the Summary Plan Description?
• Why did we receive "Schedule A" for Form 5500 from our insurance company?
• Why would a participant in the Medical FSA want to continue their coverage under COBRA?

Customer Service

• How does "FSA Inquiry" work on the internet web site?

Dependent Care FSA

• An employee shares custody of his child with a former spouse. The child alternates living with each parent during the year, and the parents alternate claiming the child as a tax dependent every other year. Can the employee participate in the Dependent Care FSA?
• Can a non-custodial parent submit FSA claims for a child?
• Can the Dependent Care FSA election amount be changed anytime there is a change in provider or cost?
• Do Camp Expenses Qualify for Dependent Care Reimbursement?
• Do Dependent Care FSA participants have any special tax reporting requirements?
• Does the "Annualization Rule" apply to the Dependent Care FSA?
• Does the employer have any special tax reporting requirements for Dependent Care FSA participants?
• How May Experience Gains Arising from Participant Forfeitures be Used?
• Is kindergarten an eligible child care expense?
• What types of arrangements are NOT reimbursable under the Dependent Care FSA?

Direct Deposit

• When does my Direct Deposit payment actually show up in my bank account?

Discrimination Rules

• Are participants in an ESOP considered "stockholders" for flex discrimination testing purposes?
• Can the owners of our business participate in the flex plan?
• Can the spouses and other family members of the owners of our business participate in the flex plan?
• I am the sole owner of an S-corporation. I understand that I am not eligible to participate in my company's flex plan. Can I nevertheless participate through my spouse, who is a bona fide employee of our company?

Election Changes

• A Participant who is currently enrolled for health insurance and in the Medical FSA has just become eligible for Medicare. Can he change his flex election mid-year?
• Can participants make insurance coverage changes during the Flex Plan year, especially if insurance rates have increased significantly?
• If employees make an honest mistake on a flex plan election form, can they change their election?
• We are changing our medical insurance plan, raising co-pays and deductibles. Can employees increase their Medical FSA election to cover this increased exposure?
• What medical FSA maximums apply after a Change in Status?

Employer Issues

• Can Members of an LLC participate in a flex plan or in an HRA?
• Can owners of "S-Corporations" participate in a flex plan?
• Can pre-tax flex contributions be taken from severance pay?
• How do I advise PBP of new employee hires and premium information?
• How does flex affect IRS Form W-2?
• If an employee is rehired within 30 days of termination, is he treated as a new employee or does he step back into his original election?
• Our company is declaring bankruptcy and closing its doors. Can I still get my flex reimbursements?
• Self-employed individuals cannot participate in a flex plan. Can their spouse participate if employed by the company?
• What is the "Annualization Rule" for Medical FSA? How Does it Work?

HRA

• What is a Health Reimbursement Account (HRA)?

HSA

• Why should an Employer offer a Flexible Spending Account if they are offering a HSA option for Employees?

Insurance Premiums

• A recent law allows S-corp owners to deduct 100% of employer-paid health insurance premiums that were previously partially taxable. Does this same rule apply to sole proprietors? Can they now deduct individual insurance premiums?
• An employee's spouse signed up for medical coverage under her employer's group plan. Can our employee now drop her from dependent medical coverage?
• Can a group health plan covering only the "management" class of employees till be eligible for a pre-tax Section 125 plan?
• Can an employee drop medical insurance in the middle of the pre-tax plan year?
• Can cancer insurance be offered pre-tax under a flex plan?
• Can employees pre-tax the premium for coverage under their spouse's employer plan?
• Can Group Term Life Insurance Be Pre-Taxed Under A Flexible Benefit Plan?
• Can individual health insurance policies be included in a Flexible Benefit Plan?
• Can participants make insurance coverage changes during the Flex Plan year, especially if insurance rates have increased significantly?
• Can we automatically enroll people in the pre-tax premium plan? I thought each person had to sign an annual election form.
• Do pre-tax flex contributions reduce disability benefits under our Long Term Disability insurance, since these are based on salary?
• How much can we discriminate in the portion of health insurance premiums paid for different classes of employees?
• If a large rate increase is passed through to employees on our April 1st renewal, can we allow them to drop dependent coverage if they choose? Ours is a calendar year flex plan.
• Joe Employee wants to drop his spouse from coverage and stop paying her pre-tax premiums thru flex. Can we allow this?
• Our company has always paid 50% of dependent health premiums. We are no longer going to pay any of the dependent cost. Can employees increase their pre-tax premiums to pay the full cost?
• Our insurance carrier gave us a rate increase. Can we adjust the pre-tax premium contributions accordingly?
• Should you ever consider paying pre-tax eligible insurance premiums on an after-tax basis?
• We are adding a new dental plan. Can our participants pre-tax their premiums?
• We are going to require employees to pay part of "Employee Only" medical coverage. Can this amount be pre-taxed? Can employees drop coverage if they wish?
• We have been offered free Section 125 plan administration. Should we accept this?
• What Insurance Products Can Be Pre-taxed?
• What options exist when a "significant cost change" in insurance premiums occurs during the plan year?

Leaves of Absence

• Are flex plans affected by FMLA (Family Medical Leave Act) rules or others types of leaves?
• How are plan benefits affected if an employee is called to active duty military service?
• How is flex participation affected during a leave of absence? (Pre-Tax Premiums & FSAs)

Medical FSA

• Are "stop smoking" programs and related prescriptions eligible for flex?
• Are "Y" dues, health clubs, spas, or yoga sessions an eligible expense?
• Are contact lens supplies reimbursable by the Med FSA?
• Are expenses for a prosthetic eye (glass eye) reimbursable from a medical flexible spending account?
• Are expenses for capital expenditures (heating, air conditioning, central vacuum systems) reimbursable from a medical flexible spending account?
• Are non-prescription drugs eligible for MedFSA reimbursement?
• Can a non-custodial parent submit FSA claims for a child?
• Can cancelled checks or VISA slips be used with a claim for FSA reimbursement?
• Can the "Student Health Fees" portion of school tuition be reimbursed by the Medical FSA?
• Can the Medical/Dental/Vision Care FSA reimburse expenses for Preferred Physician programs or MD/VIP programs?
• Can the Medical/Dental/Vision Care FSA reimburse expenses incurred for a special camp for a mentally impaired or physically disabled person?
• Can the Medical/Dental/Vision Care FSA reimburse expenses incurred for special schools and/or teaching for a learning-disabled child?
• Can the Medical/Dental/Vision Care FSA reimburse the cost of a wig?
• Can vitamins be reimbursed by a Medical FSA?
• How are orthodontia payment plans handled under a flex plan?
• How are prenatal expenses handled under a flex plan?
• How May Experience Gains Arising from Participant Forfeitures be Used?
• If an employee terminates with a negative Medical FSA account balance, must the employer send the employee an amended W2?
• If planned medical expenses do not occur, can participants reduce their FSA election?
• Is cosmetic or elective surgery reimbursable?
• What if an employee terminates, having received Medical FSA benefits in excess of deposits?

Plan Design

• Can an employer "match" deposits to an FSA? Subsidize an FSA?
• Can domestic partners be covered by a flex plan?
• Can Employer Credits in a Cafeteria Plan be based on a percentage of each employee's salary?
• Can we self-administer our FSA plan?
• Can we self-administer our POP plan?
• Want to enhance your flex plan for next year?
• Where is the Cash Option? (Code § 125 applies only if the plan offers a choice between cash and qualified benefits.)
• Who is a "Fiduciary" of a Flexible Benefit Plan?

Status Changes

• An employee got divorced during the plan year. Though he "lost" a dependent, he wants to add coverage by enrolling in the Medical FSA for the first time. Is this permitted?
• Does a pay increase or decrease entitle employees to change their elections for the Medical FSA or Medical Insurance Benefits?
• If a participant terminates the Medical FSA due to a Change in Status, can the remaining FSA balance be used anytime during the remainder of the year?
• Our company has always paid 50% of dependent health premiums. We are no longer going to pay any of the dependent cost. Can employees increase their pre-tax premiums to pay the full cost?

Tax Treatment

• Do salary contributions to a flex plan reduce my compensation for purposes of calculating my maximum retirement plan contribution under Section 415?
• Our company sponsors a 401(k)/ profit sharing retirement plan under which we make the maximum 15% contribution allowed by law. Can our employees still participate in a flex plan?
• What are the tax consequences if an employee has a gain from the flex plan? In other words, one of our terminated employees got more from the Medical FSA than he contributed!
• What are the tax consequences if an employer has a gain from the flex plan?

Use It or Lose It

• My Medical FSA has excess funds remaining at year-end that I have not spent. How can I avoid forfeiting this money under the "Use it or Lose it" rule?
• What continuation options can or must be offered to terminating employees with positive FSA balances?
• Who gets FSA funds forfeited under the "Use It or Lose It" rule? What can be done with these funds?