Using a Flexible Spending Account can save most employees 22% to 38% on the cost of out of pocket expenses for health and dependent care services. Each part of a Flexible Spending Account has special advantages and restrictions. You should read this web page carefully. You may want to discuss your personal situation with a tax advisor before deciding how to make a Flexible Spending Account work for you. The Flexible Spending Accounts are administered by P&A Group
What is a Flexible Spending Account?
A flexible Spending Account takes advantage of income tax laws that allow you to pay your share of the cost of your benefits on a tax-free basis. Through a Flexible Spending Account, you “redirect” part of your pay before federal income or Social Security taxes are computed.
|With FSA||Without FSA|
|Average employee pre-tax contribution to FSA||$1,535||$0|
|Tax savings from FSA contributions*||$460||$0|
|Average savings your coworkers enjoyed from their 2015 FSA||= $460||= $0|
|*Assuming a 30% tax rate. Actual savings will vary based on your individual tax situation; please consult a tax professional for more information.|
How Flexible Spending Accounts Work:
Flexible Spending Accounts offer two ways to pay certain expenses with tax-free dollars.
- Health Care Reimbursement Account
- Dependent Care Reimbursement Account
Who is eligible to participate?
You are eligible to participate if you are otherwise eligible for health benefits with the University.
Duration of participation:
An election to participate or not to participate is irrevocable for the plan year. If you terminate employment or go on leave without pay during the plan year, you may continue your monthly payments for the full plan year.
- You receive pretax treatment of monthly payments paid for through the University’s pay warrant at the time of termination.
- You pay with after-tax dollars if you do not prepay through the University’s pay warrant.
- You may elect free coverage for the balance of the plan year for the pro-rated amount of your current payroll deductions less any reimbursements made up to the time of your termination.
Setting up an account:
You decide how much money to set aside in an account for the plan year. You may deposit any amount between $10 and $208.33 a month ($120 to 2,500 annually) for a Plan year.
|Bi-weekly (24 deductions)||$5.00||$108.33|
|22-Pay Faculty (20 deductions)||$6.00/pay||$130.00/pay|
Estimate your expenses on the conservative side:
Estimating your expenses conservatively will allow you to benefit from the tax advantage without having to forfeit any portion of your account that is not used by the end of the plan year.
Use it or lose it (forfeiture):
Because of the favorable tax treatment you receive through this type of account, there is an IRS restriction that applies. The restriction states that any money remaining in your account(s) at the end of the grace period will be forfeited.
Using your account – filing claims:
As you incur reimbursable expenses during your eligible period of coverage, send in your claim forms and the required documentation to the claim administrator listed on the claim form. When you have claimed $20 or more in unreimbused expenses (for example: deductibles, coinsurance, or expenses not by insurance covered), a benefit payment from your account will be sent to you, either by check or direct deposit. After the end of the last quarter of the plan year, claims for less than $20 will be paid.
How often are claims paid?
Claims are processed for payment weekly. Claim requests will be processed within 10 days of receipt.
Required claim reimbursement documentation:
- A completed (and signed) health care claim form; and
- If the expense is covered by insurance (this includes your deductible, which is a covered expense), an Explanation of Benefits (EOB). An EOB is a statement from the insurance carrier that explains how much of the health care charges will be paid by insurance.
- If the expense is covered by an HMO, a (paid) receipt or an invoice that clearly identifies the name of the service provider, the date of service, the service rendered, the cost of service, and, if paid, the date paid.
- If the expense is not covered by insurance, HMO, or paid at a reduced rate, a receipt or an invoice that clearly identifies the name of the service provider, the date of service, the service rendered, the cost of service, and, if paid, the date paid.
Incomplete or incorrect documentation will delay processing of claims. Instructions for completing the HCRA claim form are provided on the claim form itself.
Claim filing grace period: You have until March 15, 2018 to incur eligible expenses for your Health Care FSA. You have until April 15, 2018 to submit eligible expenses for reimbursement.
Keeping track of your account:
To help you keep track of your account, you will receive a quarterly statement. This statement will show the activity in your account and keep you informed about your remaining balance.NOTE: Medical expenses that are reimbursed through your HCRA cannot be deducted on your personal income tax return.
Will a Flexible Spending Account affect my University of Maryland retirement benefits?
No, your retirement benefits are based on your salary before a Flexible Spending Account redirection.
Will a Flexible Spending Account affect my Group Life, Disability, and other benefits?
No, benefits from Term Life, Short and Long Term Disability, and other benefits will be based on your salary before a Flexible Spending Account redirection.
Will a Flexible Spending Account affect any other University benefit?
It may affect the amount to be redirected to your deferred compensation plan. Check with your tax advisor and/or your benefits coordinator.
Will a Flexible Spending Account affect my Social Security benefit?
Possibly – using tax-free dollars will lower your taxable pay. If your taxable pay is below the maximum Social Security wage base, this could produce a slight reduction in your ultimate Social Security benefit when you retire. However, the savings you realize from paying for benefits with tax-free dollars should more than offset any subsequent reductions in your Social Security benefit retirement. You may wish to consider contributing all or a portion of your Flexible Spending Account savings to a deferred compensation plan to offset any reduction in Social Security benefits to reduce your Flexible Spending Account participation as you near retirement.Types of Accounts
- Health Care Reimbursement Account (HRCA)
What is a health care reimbursement account?
A health care reimbursement account (HCRA) allows you to set aside tax-free money to cover eligible health care expenses you incur for you and your eligible dependents during the plan year. To be considered a “dependent” the person must meet the IRS definition of dependent.
Eligible health care (medical) expenses:
Eligible health care (medical) expenses are expenses which are “medically necessary.” This means the expenses must be for the diagnosis, treatment or prevention of disease and for treatment affecting any part of function of the body. The expense must be to alleviate or prevent a physical defect or illness.In addition, to qualify as a reimbursable health care expense the medical, dental, vision or hearing expense must:
- be incurred (received) during your eligible period of coverage; and
- not be reimbursable from any other health insurance.
Expenses incurred prior to or after the end of the plan year or after your eligible period of coverage are not reimbursable.HRCA claim forms may be obtained by establishing a login on the P&A Group website.
- Dependent (Day) Care Flexible Spending Account (DFSA)
One of the most important issues to a working parent is child care. Not only is it difficult to find and arrange for good child care, it can be very expensive. Also, with our aging population, many people are caring for elderly or disabled dependents who are unable to care for themselves.
What is a dependent (day) care Flexible Spending Account?
The dependent (day) care Flexible Spending Account (DFSA) is designed to give you a tax saving way to pay for these expenses. This account works much like the health care reimbursement account – with a few twists.It is important to remember that the dependent day care expenses must meet certain IRS requirements. The expenses must be necessary for you to continue working. If married, you and your spouse must both be working, or your spouse must be a full-time student or disabled.To be considered a “dependent,” the person receiving care must be eligible to be claimed as your dependent on your federal income tax return and be either:
- under the age 13; or
- your spouse or other dependent who is physically or mentally incapable of self-support, and who spends at least 8 hours per day in your home.
Using tax-free dollars to pay for expenses:
With a DFSA you can set aside money to cover these expenses on a tax-free basis. This way you save money because you never have to pay taxes on the money you set aside in the account.
Reimbursable dependent (day) care expenses:
To qualify as a reimbursable dependent (day) care expense, the expense must be incurred during the plan year. Any dependent (day) care expenses incurred prior to or after the plan year or your participation period are not reimbursable.
Setting up an Account:
To set up a DCRA, you must first decide how much money to set aside for the plan year. You may deposit any amount between $10 and $416 a month ($120 to $5,000 annually for a full plan year). Your maximum amount is $208 a month if you are married filing a separate income tax return. The IRS limit the amount of money you may redirect to the smallest of :
- your income
- your spouse’s income, or
- $5,000 per family ($2,500 if married filing separate return).
There are special IRS provisions if your spouse is a full-time student or is disabled.After you decide how much you want to set aside in your DCRA complete the Flexible Spending Account section of the enrollment worksheet. The amount authorized, plus the administrative fee, will be redirected, before taxes, from your paycheck each month.
Required claim-reimbursement documentation:
A completed (and signed) dependent care claim form; and a receipt from the service provider which shows the name of the provider, the dates of service, the cost of service, and the amount incurred; or the TIN or SSN for that provider the dependent (day) care claim form, with Section IV completed, signed and dated by the service provider.Incomplete or incorrect documentation will delay processing of claims. Instructions for completing the dependent care reimbursement account claim form are provided on the form.DCRA claim forms may be obtained by establishing a login on the P&A Group website.