Administered Under Section 125 of the Internal Revenue Code
Section 125 of the Internal Revenue Code allows employees to establish a plan where employees are allowed to benefit from significant tax savings by setting aside money for their medical and dependent care expenses each year. Employees benefit by saving Federal, State, Social Security, and Medicare taxes on each and every paycheck.
Employers benefit from saving on payroll taxes (Social Security and Medicare).
As a result, Flexible Spending Accounts (FSAs) are one of the few benefit plans that can be a “win-win” situation for employers and employees alike.
Cafeteria Plan/Flexible Spending Accounts
Cafeteria (Section 125) Benefit Plans
Under Section 125 of the Internal Revenue Code, employees and employers are permitted to have selected benefits deducted from employee paychecks on a “pre-tax” basis, resulting in lower payroll taxes for both the employer an employee.
Benefit to Employer:
Because benefits are deducted on a pretax basis, wages reported on quarterly tax returns (Form 941) are lower and the resulting taxes (Social Security & Medicare) are lower. For 2006, the payroll is 7.65%.
This means that, for every employee with just $25 per week in benefit deductions, the employer would save $99.45 per year in payroll taxes.
Benefit to Employees:
Employees will also save the 7.65% social security/medicare payroll taxes. In addition, individual employees will see a reduction in Federal income taxes and, in most states, a reduction in state income taxes, as well.
Most employees will fall into a 15% tax bracket. Assuming an average state tax rate of 5%, the average employee savings will be 27.65% of the total benefits elected.
What Benefits Qualify?
Many group insurance products qualify for pre-tax treatment under a Section 125 benefit plan. Most employers deduct a portion of health and dental insurance from employee paychecks. With FlexPro 125, those deductions can be taken on a pre-tax basis, resulting in lower taxes for both the employer and employee.
Flexible Spending Accounts
In addition to group insurance products, employees are allowed to set aside funds to pay for out-of-pocket medical and day care expenses under what we call “Flexible Spending Accounts”. Under the plan, employees are permitted to have regular amounts deducted (pre-tax) from their paychecks in order to pay for:
Repetitive expenses such as physician or pharmacy copayments, dental and vision expenses that tend to add up over the year;
Up to $96.15 per week in dependent care expenses.
Expensive medical procedures such as orthodontics, expensive dental procedures, popular eye surgeries such as Lasik, PRK or RK surgeries.
At 27.65%, a $2,000 orthodontic bill under AIRFlex saves the employee $533.00 and the employer another $153.00
Access to Benefits:
Under AIRFlex employees have two (2) ways to access their FSA benefits:
Reimbursement: Employees submit receipts for expenses and reimbursements are mailed on a weekly or bi-weekly basis. (Direct deposit is also available)
The FlexCard: We provide employees with a special purpose Mastercard - allowing them to use the card at participating merchants. With the FlexCard, the employee does not have to pay for the services and then wait on reimbursement. The FlexCard takes the money directly out of their Flexible Spending Account.
Internet Access to Account Information: Participants have access to claims information via a secure website providing information regarding annual elections, expenses (detailed by vendor) paid both through reimbursement and through the FlexCard, and information concerning unused account balances.
Administrative Simplicity: AIR is experienced and knowledgeable in administering flexible spending accounts under Section 125 for its clients. We offer a comprehensive administrative package that keeps administrative burdens to a minimum.
Your (Employer) Part
- Sponsor enrollment meetings to allow us to communicate benefits to your employees
- Once employee elections are made, employee elections are deducted on a pre-tax basis
- Weekly/Bi-weekly plan funding
Our (AIR) Part
- Preparation of Plan documents, Summary Plan Descriptions and appropriate resolutions
- Written communication materials for employee meetings
- We provide worksheets and assist employees with decisions for annual elections
- Discrimination testing as required under IRC 125
- Provide toll-free customer service for plan participants
- Coordination of reimbursements from employee receipts and/or Flexcard purchases
- Communication with participants toward the end of the year concerning plan balances
Medical Expenses Eligible for Reimbursement Under AIRFlex
- Excess over UCR
- Private room differential
- Prescription drugs
- Copayments from drug plan
Other Medical Procedures and Supplies
- Alcoholism/substance abuse treatment
- Blood pressure cuff
- Diabetic supplies
- Hearing exams
- Hearing aids/batteries
- Infertility diagnosis and treatment
- In-vitro fertilization
- Physical/speech/occupational therapy
- Hospital bed
- Orthopedic shoes
- Wheel chair/crutches
- Routine examinations
- Contact lenses
- Eye drops/contact solutions
- Eye glasses
- Eye Surgeries (Lasik, RK, PRK)
- Routine examinations
- Extractions, crowns, fillings
Under 2010 Health Reform Legislation, effective January 1, 2011, over the counter drugs will be eligible for reimbursement only if accompanied by a prescription. Other rules and regulations regarding eligible products, the need for substantiation (receipts), dates of service, etc. remain in force.