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Midyear Health FSA Election Changes: Essential Guidelines for Employers and Employees

by admin | Feb 20, 2025 | Blog

Administering a Health Flexible Spending Account (FSA) can be challenging, especially when employees request midyear changes to their elections due to unforeseen medical circumstances. This blog post aims to clarify the rules surrounding midyear election changes and provide practical tips for employers to manage these situations effectively.

Can Employees Change Health FSA Elections Midyear?

Question: Can employees reduce their Health FSA contributions if they are prevented from receiving anticipated medical care after enrollment?

Answer: No, employees cannot change their Health FSA elections under these circumstances. According to IRS regulations, an employee’s Health FSA election is irrevocable during a plan year unless an event occurs that fits within one of the exceptions available under IRS regulations or other guidance. Changes in medical condition or a provider’s recommendation do not qualify as changes in status and do not fall within the other exceptions applicable to Health FSAs.

Examples of Non-Qualifying Situations

Pregnancy and Laser Eye Surgery: If a doctor refuses to perform laser eye surgery on an employee who is pregnant, the employee cannot change their Health FSA election.
Dental Work Changes: If an employee’s spouse does not undergo planned dental work because the dentist’s recommendation changed, the employee cannot adjust their Health FSA contributions.

These situations do not qualify as “mistakes” that would allow an election change. The IRS’s 2007 proposed cafeteria plan regulations include an example where an employee elects Health FSA salary reductions for the next plan year in anticipation of eye surgery. If the surgery cannot be performed after the plan year starts, the employee must forfeit the remaining balance under the use-or-lose rule if their other eligible medical expenses are less than the amount contributed.

Minimizing Employee Relations Issues

While election changes are not allowed under these circumstances, employers can take steps to minimize employee relations issues:

Clear Communication: Ensure that enrollment and other materials clearly explain the limited reasons for midyear election changes. Including real-life examples can be helpful.
Remind Employees of Eligible Expenses: Employees may still use the funds by submitting other eligible expenses for reimbursement.
Plan Amendments: Consider amending your plan to allow Health FSA carryovers of up to $660 to the next plan year. The maximum carryover amount is indexed, so stay updated on the latest limits.
Grace Period: Adopt a grace period to give employees extra time to use up remaining funds.

By proactively addressing these issues, employers can help employees better understand their Health FSA options and reduce frustration related to midyear election changes.

Source: Thomson Reuters

Understanding COBRA Coverage Termination for Small Premium Shortfalls

by admin | Feb 13, 2025 | Blog

When managing COBRA coverage, it’s important to know what happens if a qualified beneficiary pays less than the full premium amount. Here’s a simplified guide:

Timely Payments and Grace Periods

Qualified beneficiaries must make timely COBRA premium payments, with a 30-day grace period each month. If the full premium isn’t paid by the end of this period, coverage can be terminated. However, there are special rules for small shortfalls.

What is an Insignificant Shortfall?

An insignificant shortfall is a payment that is less than or equal to the lesser of $50 or 10% of the required premium. For example, if the premium is $490, a shortfall of up to $49 is considered insignificant.

Handling Insignificant Shortfalls

Notify the Beneficiary: Inform them of the shortfall and give them a reasonable period (usually 30 days) to pay the difference.
Grace Period: Allow the beneficiary to pay the remaining amount during this period to avoid termination.
Accept Underpayment: Alternatively, the plan can accept the underpayment as full payment.

Best Practices

Include Procedures: Clearly outline shortfall procedures in your COBRA plan.
Prepare Notices: Have a standard notice ready for shortfalls.
Prompt Notification: Send the notice as soon as a partial payment is received.

By following these steps, you can manage COBRA coverage effectively and ensure compliance with regulations. This helps prevent unnecessary termination and gives beneficiaries a fair chance to maintain their health benefits.

Source: Thomson Reuters

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

by admin | Feb 6, 2025 | Blog

Navigating the intricacies of Dependent Care Assistance Programs (DCAP) can be challenging, especially when it comes to understanding what expenses qualify for reimbursement. One common question that arises is whether application fees, deposits, and similar expenses can be reimbursed. Here, we break down the IRS regulations and provide clarity on this topic.

What Are Indirect Expenses?

Indirect expenses are costs that are not directly for care but are necessary to obtain care. Examples include application fees and deposits paid to day-care centers or preschools. According to IRS regulations, these expenses may qualify for reimbursement under a DCAP if they meet specific criteria.

Criteria for Reimbursement

To be eligible for reimbursement, indirect expenses must:

Be Required for Care: The employee must be required to pay these expenses to obtain related care.
Meet DCAP Rules: The expenses must comply with DCAP rules and the plan document.
Relate to Provided Care: The care to which these expenses relate must actually be provided.

Examples of Reimbursable and Non-Reimbursable Expenses

Reimbursable: If a DCAP participant pays a $100 application fee to secure a spot at a new day-care provider, this fee can be reimbursed once the care is provided.
Non-Reimbursable: If a participant pays a $100 deposit to a preschool but later decides not to enroll the child, the deposit is not reimbursable since the care was not provided.

Timing of Reimbursement

The IRS does not specify whether indirect expenses can be reimbursed in full once care commences or if they must be reimbursed proportionately over the duration of the care agreement. To err on the side of caution, it is advisable to prorate the reimbursement over the agreement’s duration. For instance, if the agreement is month-to-month, the entire fee might be reimbursed after the first month of care. For longer agreements, the fee should be prorated accordingly.

Conclusion

Understanding the nuances of DCAP reimbursements for indirect expenses like application fees and deposits is crucial for both employers and employees. By ensuring these expenses meet the necessary criteria and timing the reimbursements appropriately, you can navigate the DCAP rules effectively and make the most of your benefits.

Source: Thomson Reuters

IRS Announces 2025 Standard Mileage Rates and Vehicle Value Limitations

by admin | Jan 9, 2025 | Blog

The IRS has released the optional standard mileage rates for 2025, providing important updates for businesses, medical care, and charitable activities. Here’s what you need to know about the new rates and vehicle value limits.

2025 Standard Mileage Rates

Business Use: The standard mileage rate for business use of an automobile has increased to 70 cents per mile, up from 67 cents in 2024. This rate can be used instead of calculating actual expenses like depreciation, lease payments, and fuel costs.
Medical and Moving Use: The rate for using an automobile to obtain medical care or for moving expenses remains unchanged at 21 cents per mile. This rate applies to variable expenses only, such as gas and oil, and does not include fixed costs like depreciation and insurance.
Charitable Use: The rate for charitable use of an automobile remains at 14 cents per mile.

Understanding the Rates

The standard mileage rates offer a simplified method for taxpayers to deduct automobile expenses. For business use, the rate covers both fixed and variable costs, while for medical and moving purposes, only variable costs are deductible. Parking fees and tolls related to medical or moving expenses can be deducted separately.

Vehicle Value Limits

The IRS has also set the maximum vehicle values for 2025, which determine the applicability of certain valuation rules for employer-provided vehicles:

Cents-Per-Mile Rule: This rule values personal use of an employer-provided vehicle by multiplying the business standard mileage rate by the number of personal miles driven.
Fleet-Average Valuation Rule: Employers with a fleet of 20 or more vehicles can use an average annual lease value for each vehicle in the fleet.

For vehicles first made available for personal use in 2025, the maximum vehicle value under both rules is $61,200, down from $62,000 in 2024. This value also sets the maximum standard automobile cost for reimbursement allowances under a fixed and variable rate (FAVR) plan.

These updates from the IRS provide clarity and consistency for taxpayers planning their 2025 automobile expenses. By understanding and utilizing the new standard mileage rates and vehicle value limits, individuals and businesses can better manage their tax deductions and compliance.

Understanding Employee Benefit Acronyms: A Quick Guide

by admin | Dec 12, 2024 | Blog

Employee benefits often include a lot of acronyms. What do these and other acronyms mean? They are primarily used in Cafeteria Plans, Consumer-Driven Health Care, ERISA Compliance, COBRA, HIPAA, and Group Health Plan Mandates manuals. The list below provides a comprehensive collection of all the acronyms used.

AD&D Plan – Accidental Death and Dismemberment Plan

ADA – Americans with Disabilities Act

ASG – Affiliated Service Group

ASO – Administrative-Services-Only

ATIN – Adoption Taxpayer Identification Number

CE – Covered Entity

CMS – Center for Medicare and Medicaid Services

COB – Coordination of Benefits

COBRA – Consolidated Omnibus Budget Reconciliation Act

COLA – Cost-of-Living Adjustment

CONUS – Continental United States

DCAP – Dependent Care Assistance Program

DCTC – Dependent Care Tax Credit

DFVC Program – Delinquent Filer Voluntary Compliance Program

DOL – Department of Labor

EAP – Employee Assistance Plan

EBHRA – Excepted Benefit HRA

EBSA – Employee Benefits Security Administration

EDI – Electronic Data Interchange

EFAST2 – ERISA Filing Acceptance System II (electronic submission of Form 5500s)

EIN – Employer Identification Number

EOB – Explanation of Benefits

EOI – Evidence of Insurability

EPP – Employer Payment Plan

ERISA – Employee Retirement Income Security Act

ePHI – Electronic Protected Health Information

FAVR – Fixed and Variable Rate

FICA – Federal Insurance Contributions Act

FITW – Federal Income Tax Withholding

FLSA – Fair Labor Standards Act

FMLA – Family and Medical Leave Act

FSA – Flexible Spending Arrangement

FUTA – Federal Unemployment Tax Act

GCPCA – Gag Clause Prohibition Compliance Attestation

GHP – Group Health Plan

GTL Insurance – Group Term Life Insurance

HCE – Highly Compensated Employee

Source: Thomson Reuters

HCI – Highly Compensated Individual

HCP – Highly Compensated Participant

HDHP – High-Deductible Health Plan

Health FSA – Health Flexible Spending Arrangement

HHS – Department of Health and Human Services

HIPAA – Health Insurance Portability and Accountability Act

HMO – Health Maintenance Organization

HRA – Health Reimbursement Arrangement

HSA – Health Savings Account

ICHRA – Individual Coverage HRA

IIAS – Inventory Information Approval System

LTCI – Long-Term Care Insurance

LTD Plan – Long-Term Disability Plan

MACRS – Modified Accelerated Cost Recovery System

MCC – Merchant Category Code

MEWA – Multiple Employer Welfare Arrangement

OCR – Office for Civil Rights

PBM – Pharmacy Benefit Manager

PCORI – Patient-Centered Outcomes Research Institute

PEO – Professional Employer Organization

PHI – Protected Health Information

POP – Premium-Only Plan

PPO Plan – Preferred Provider Organization Plan

PTO – Paid Time Off

QB – Qualified Beneficiary

QE – Qualified Event

R&C – Reasonable and Customary

RRTA – Railroad Retirement Tax Act

SAR – Summary Annual Report

SBC – Summary of Benefits and Coverage

SIFL – Standard Industry Fare Level

SIHP – Self-Insured Health Plan

SMM – Summary of Material Modification

SPD – Summary Plan Description

STLDI – Short-Term, Limited-Duration Insurance

TPA – Third-Party Administrator

UCR Rate – Usual, Customary, and Reasonable Rate

VEBA – Voluntary Employees’ Beneficiary Association

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