IRS Announces 2018 Increases to Flex Benefit Contribution Limits

IRS Announces 2018 Increases to Flex Benefit Contribution Limits

by | Oct 20, 2017

LEAWOOD, KS., (October 20, 2017) – The IRS has announced the 2018 contribution maximums for Flexible Spending Account (FSA) plans in the newly released Revenue Procedure 2017-58. Contribution limits increased for the Health FSA, Commuter Benefits and Adoption Assistance program, while limits for the Dependent Care FSA remained unchanged.

Health Flexible Spending Account

The Health FSA, which provides employees the ability to set aside money on pre-tax basis to pay for eligible medical, dental, and vision expenses will have an increase to its contribution maximum from $2,600 to $2,650 for 2018. The new contribution limit will also apply to the Limited Purpose FSA which reimburses eligible dental and vision expenses.

Commuter Benefits

Commuter Benefits help employees pay for certain parking, mass transit and/or vanpooling expenses with pre-tax dollars. The contribution limits for this account will increase from $255 to $260 for 2018.

Adoption Assistance

The Adoption Assistance FSA helps employees pay eligible adoption expenses such as agency fees and court costs by contributing to the account with pre-tax money from their paycheck. The contribution limits for this account will increase from $13,570 to $13,840 for 2018.

2017 and 2018 Contribution Amounts

Benefit 2017 | 2018

Health FSA $2,600 | $2,650

Limited FSA $2,600 | $2,650

Dependent Care $5,000 | $5,000

Parking/Transportation $255 / $255 | $260 / $260

Adoption Assistance $13,570 | $13,840

Questions? Contact us at 855.890.7239 or send an email to customerservice@nuesynergy.com.

IRS Announces 2018 Increases to Flex Benefit Contribution Limits

Employers Can Contribute to Employees’ Flexible Spending Accounts

by | Nov 6, 2016

For years, Flexible Spending Accounts (FSAs), also known as 125 plans or cafeteria plans, have been a popular employee benefit because they allow employees to set aside tax-free dollars for medical expenses they expect to incur during the year. Not only do employees avoid paying federal and, in most cases, state income taxes on these funds, they also save on their FICA taxes, which total another 7.65% of their income.
In the past, employers decided how much money employees could contribute to their FSAs; there was no statutory maximum. However, the Affordable Care Act changed that: as of January 1, 2013, employee contributions to a Flexible Spending Account are limited to $2,500 per year, indexed for inflation. In 2016, the cap is $2,550.

What some people don’t realize, though, is that employers can also contribute funds to their employees’ FSAs. This can be a great strategy for companies that offer a dual option to employees. For example:

In the above example, the total employer contribution would be the same regardless of which option the employees select, and the contribution to an employee’s FSA might actually be more desirable for the employer than an HSA contribution since the company would retain any unused FSA funds at the end of the plan year (assuming no rollover is offered).

For companies that would like to contribute to their employees’ Flexible Spending Accounts, though, there are some rules which are outlined in IRS Notice 2013-54 and embedded in the tax code:

“a health FSA may be considered to provide only excepted benefits if other group health plan coverage not limited to excepted benefits is made available for the year to employees by the employer, but only if the arrangement is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election).

What, exactly, does this mean? Basically, an FSA, just like a health reimbursement arrangement or an employer payment plan, is considered to be a group health plan subject to the market rules applicable to group health plans (including the annual dollar limit prohibition and the preventive services requirement). However, FSAs that are treated as “excepted benefits” are exempt from these rules. Without getting too detailed, FSAs should definitely be structured to be excepted benefits to stay in compliance, so here are the rules in plain English:

1. First, the employer must offer group health coverage to the employees separate from the FSA. An employer cannot offer a Flexible Spending Account if there is no underlying group health plan.

2. The total amount available to each employee (the employer and employee contributions together) cannot exceed two times the employee’s salary reduction. Essentially, this means the employer could offer a matching benefit. If the employee puts in the maximum of $2,550, for example, the employer could contribute an equal amount because the total amount available would be twice the employee’s salary reduction. Alternatively, if the employee only contributes $1,000 to her FSA, the employer could contribute no more than $1,000. If the employer contributed $2,000, for instance, then the total amount available—$3,000 in this example—would be more than twice the employee’s salary reduction.

3. If greater, the total amount available to the employee cannot exceed the employee’s salary reduction plus $500. This would come into play if the employee contributes $500 or less to the FSA. For instance, if the employee contributes $0, twice the salary reduction amount would still be $0. However, the salary reduction plus $500 would total $500.

4. Long story short, if the employee contributes between $0 and $500 to his her FSA, the employer can contribute up to $500. If the employee contributes more than $500, the employer could match the employee contribution. Any additional employer contribution would cause the FSA to be defined as a group health plan that does not consist solely of excepted benefits and would be out of compliance.

If you’d like to learn more about how you can contribute to your employees’ Flexible Spending Accounts, contact NueSynergy today. We’ll be happy to help.

IRS Announces 2018 Increases to Flex Benefit Contribution Limits

Adoption Assistance Flexible Spending Account

by | Nov 6, 2016

The Adoption Assistance Flexible Spending Account helps you pay for eligible adoption expenses by contributing to the account with pre-tax money from your paycheck. This means you do not pay federal or state income taxes (where applicable) on these funds. You will still have to pay Social Security taxes.

Your contribution limit is $13,460 for the 2016 tax year for each adoption. An adoption can be domestic (in the U.S.) or foreign (in another country).

Eligible Expenses
Adoption agency fees
Children under age 18
Person who is physically or mentally incapable of self-care
Special needs child
Court costs
Attorney fees
Travel expenses, including meals and lodging, while away from home
Home study and application fees
Agency fees
Medical services and counseling
Note: You must also report these expenses as part of your income tax filing.

Ineligible Expenses
Surrogate parent fees
Fees to adopt a stepchild
Fees for legal guardianship
Fees that have been reimbursed from any other source*
Fees or expenses that violate state or federal law
Getting reimbursed
NueSynergy allows for multiple methods of reimbursement. You can submit claims online through www.NueSynergy.com, through your NueSynergy mobile app, or manually by mail, fax, or email. Be sure to include a copy of the adoption agency bill or detailed court document with each reimbursement request.

Frequently Asked Questions
What is a Special Needs Child?

A special needs child must be a U.S. citizen or resident and must be certified by the state of his or her residence to meet its definition of a special needs child.

How does the Adoption Assistance FSA impact my right to take the adoption expense tax credit on my tax return?

You may be able to take both but we advise you to speak with your own tax advisor directly about this before making a final tax determination.

If I elect the Adoption Assistance FSA now, are any of my expenses from prior years eligible for reimbursement?

No. You can only claim expenses that you have in the year that you have the FSA.

What happens if I enroll in an Adoption Assistance FSA and the adoption falls through?

If the adoption was cancelled, you can stop your election. This means that you can stop any more payroll contributions into the FSA. You can’t get a refund of any money left in your FSA. You would forfeit that money because of the FSA “use-it-or-lose-it” rule.

What happens if I overestimate my adoption expenses and have money left in my FSA at the end of the plan year?

The FSA “use-it-or-lose-it” rule applies. This means that you would forfeit any money left in your FSA.

Is there an income limit for the Adoption Assistance FSA?

Yes. It’s based on your modified adjusted gross income (MAGI). For 2016, if your MAGI was more than $201,920 then you will not be able to contribute the full $13,460 to the FSA. If your MAGI was more than $241,920, then you can’t use the FSA.

When will I have access to my Adoption Assistance FSA funds to reimburse claims?

The only funds available to reimburse adoption claims are funds that already have been withheld from your pay based on your adoption assistance benefit election and that have not already been used to reimburse adoption expenses. If you were to submit a claim for more than the amount then credited to your adoption account, you immediately would receive your adoption assistance account balance and then, as additional money was withheld from you pay for adoption benefits and sent to NueSynergy, it would be sent right back to you as additional benefit payments until the claim was fully paid.

Questions?
Call Customer Service at 855.890.7239 or email at customerservice@nuesynergy.com

Note: We urge you to talk to your tax advisor. He or she can help you understand your eligibility for the FSA and the tax credit. You can read the instructions for IRS Form 8839. This form is for Qualified Adoption Expenses. You can also read Publication 15-B. Go to www.irs.gov.

IRS Announces 2018 Increases to Flex Benefit Contribution Limits

Employer Mandate Penalties Increase for 2016

by | Nov 6, 2016

As most employers know by now, companies with 50 or more full-time equivalent employees are required to offer affordable health coverage that provides minimum value to their full-time employees starting in 2015 or face a significant penalty. Those that don’t offer coverage to at least 95% of their full-timers pay an “across-the-board” penalty of $2,000 per full-time employee with the first 30 excluded. Those that do offer coverage pay a $3,000 on each full-time employee that actually receives a tax credit.

What employers may not know, though, is that the penalty amounts are adjusted annually for inflation. In 2016, the across-the-board penalty increases from $2,000 to $2,160 per year while the per-employee penalty increases from $3,000 to $3,240.

The Kaiser Family Foundation has created a great flowchart to illustrate how the penalties work.

IRS Announces 2018 Increases to Flex Benefit Contribution Limits

A Self-Funded Option for Unhealthy Small Employers

by | Nov 6, 2016

Are you a broker who’s been recommending self-insured, level-funded plans to your small group clients? If so, you’re not alone – more and more small employers, in an effort to keep premiums under control, are bailing on the small group market and taking advantage of one of the many self-funded options being offered to companies with as few as two employees. In the past, most brokers wouldn’t have even considered self-insuring a company with fewer than a hundred workers, and many would have set the cutoff point even higher. So why now?

The short answer is that the Affordable Care Act changed all of the rules. Younger, healthier small groups, which historically have been rewarded with below-average premiums for their relatively low claims risk, can expect their costs to go up under the new modified adjusted community rating rules. The community rating guidelines do not permit medical underwriting in the small group market, so healthier companies are being forced to pay more in order to offset the costs of older, sicker groups. It’s not fair, but it is reality.

Self-funded plans offer a great alternative: healthy companies are able to dodge the new rules and might even get a refund if they have a good year. Still, not everyone is sold on self-funding, and some companies won’t actually benefit.

For instance, a company with 25 employees might have one worker with a serious medical condition. Under a partially self-funded arrangement, the employer would cover a portion of the cost for that employee, up to a stop-loss amount, at which point the reinsurance would kick in and cover the remaining amount. Unfortunately, the expected claims costs for this employee will be reflected in the rates, so the company will pay a higher monthly amount if it’s not declined altogether.

There is another option, though. The employer can purchase a fully-insured plan in the small group market, where it won’t pay more for the sick worker, and “self-insure” a portion of the out-of-pocket costs with a Health Reimbursement Arrangement (HRA). Sure, the employer will incur some predictable HRA claims on that one employee, but if the rest of the company’s employees have a good year the employer could still come out ahead. Perhaps it will help if we put some numbers to it. We’ll keep the math easy.

Assume the company has these two options: stick with its existing $3,000 deductible HSA-qualified plan or purchase a higher-deductible plan and use a portion of the premium savings to lower the exposure for the employees.

This is an actual quote, and it’s a great example of one where the math just works. Let’s assume the employer is paying 100% of the premium. That means the company will save $146 per employee per month, or $1,752 per year. Multiply that by 25 employees, and the company would save $43,800 per year by moving to the $6,000 deductible plan.

One option would be to sink the premium savings into the employees’ HSAs. Sure, the employees would have more exposure than with the lower-deductible plan, but they’d also have some money for first-dollar coverage, which isn’t a bad trade-off. Unfortunately, the employer wouldn’t save any money with this option.

Another approach, though, would be to use the premium savings to pay for a Health Reimbursement Arrangement. The employer could reimburse claims between $3,000 and $6,000, making the plan “feel” to the employees like a $3,000 deductible plan. It would still be HSA-compatible, and since the employer is covering 100% of the premiums, the employees could certainly contribute some of their own funds to a Health Savings Account.

The administrative cost for this plan would be approximately $2,500, leaving the employer more than $40,000 to pay HRA claims. We already know that the one sick employee will use the full $3,000, but if the other 24 employees have a relatively good year, the employer can save quite a bit of money, but let’s not assume the best-case scenario. Instead, suppose that five of the 24 employees end up hitting the full $6,000 deductible, which is unlikely because that would total almost 25% of the group. Even so, the employer would end up paying $2,500 in administrative costs and $18,000 in claims for a total of $20,500. The net savings to the employer is $23,300, and that’s with a sick employee that would have killed the self-funding option. Clearly, this is a strategy worth considering.

One final thought: This is not necessarily the way we at NueSynergy would have designed the HRA (we would have been a little more creative), but this example does illustrate that there’s still a place for HRAs in a community rating environment. By self-funding a portion of the deductible, a company can reduce its fixed monthly premium while maintaining a great health plan for the employees.

If you have a client you’d like to consider an HRA for, we’ll work with you to structure it in a way that will minimize employer risk while maximizing employee satisfaction. Contact us today and let’s take a look at one of your toughest clients.