by daziumdesign@gmail.com | Sep 15, 2021
Each year, the IRS requires companies with pre-tax reimbursement accounts to complete nondiscrimination testing. Nondiscrimination testing ensures that the business owners and Highly Compensated Employee(s) (HCE) do not receive a disproportionate benefit from a pre-tax plan compared to other employees.
by daziumdesign@gmail.com | Sep 15, 2021
All “eligible employees” who received compensation during the previous year are included in nondiscrimination testing. Generally only union employees, non-resident aliens, leased employees and independent contractors can be excluded from nondiscrimination testing because they are not considered “eligible employees.”
by daziumdesign@gmail.com | Sep 13, 2021
Cost Savings
An individual earns $45,000 annually and elects to contribute $3,400 annually to a Healthcare FSA to cover out-of-pocket medical costs.
YOUR ESTIMATED FSA COST SAVINGS EXAMPLE
|
Without FSA |
With FSA |
| Gross Earnings |
$45,000 |
$45,000 |
| FSA Contributions |
-$0.00 |
$3,400 |
| Adjusted Gross Pay |
= $45,000 |
$41,600 |
| FICA, Fed/State Taxes |
-$6,750 |
$6,322.50 |
| Out-of-Pocket Medical Expenses |
-$3,400 |
$3,300 (covered by FSA) |
| Total Take Home |
$34,848 |
$35,267.50 |
TOTAL SAVINGS WITH THE FSA: $419.50
Who Is Eligible
Employee Eligibility
In general, an individual must simply be employed by an employer who offers one and be otherwise eligible for benefits. Note: Even if the eligible employee chooses not to enroll in their company’s health insurance (for example, if an employee chooses to be on their spouse’s insurance plan instead) they can still sign up for the FSA. Owners of the company can participate in the FSA solely on their tax filing status. Below is a summary of those rules.
- C-Corporation Owners – May participate in an FSA and receive reimbursements tax free. C-Corp owners may use their FSA to reimburse their medical expenses, as well as those of their spouse and dependent.
- Sole Proprietors – Cannot receive reimbursements tax-free. However, if the sole proprietor is married, and their spouse is a W-2 employee, then the spouse can receive the tax-free benefit. In this case, the FSA is set up in the spouse’s name and the sole-proprietor is listed as a dependent.
- Partners – Cannot receive reimbursements tax-free. However, if the partner is married, and their spouse is a W-2 employee (but not a partner), then the spouse can receive the benefit tax-free. In this case, the FSA is set up in the spouse’s name and the partner is listed as a dependent
- S-Corporation Owners – That own >2% of the company’s shares and their spouse, parents, children, and grandchildren, cannot receive reimbursements tax-free (reimbursements are subject to federal income tax withholding).
- LLC’s – Owner participation varies based on the way the LLC files taxes (as a Partnership, S-Corp, or C-Corp).
Contribution Limit
Annual Contribution Limits
| FSA Plan Type |
2026 |
| Health Care |
$3,400 |
| Limited Purpose |
$3,400 |
| Dependent Care |
$7,500
– If you are married, filing a joint return or you are head of a house
$3,750
– If you are single or married, but filing separate
|
| Adoption Assistance |
$17,670
– Phase-out income thresholds: Begin at $211,160 and end at $251,160
|
|
|
by daziumdesign@gmail.com | Sep 13, 2021
- Change in legal marital status (marriage, death of spouse, divorce, legal separation, annulment)
- Change in number of tax dependents (birth, death of dependent, adoption or placement for adoption)
- Change in dependent’s eligibility
- Change in employment status of employee, spouse or dependents
- Other changes that may permit an election change under the Dependent Care FSA are:
- Change of dependent care provider
- Change of rate charged by unrelated dependent care provider
- Child attaining age 13
- Election changes must be consistent with the event. If you experience a Change in Status, please review your Summary Plan Description, as it will provide you with important information on the deadline for reporting this event.
by daziumdesign@gmail.com | Sep 13, 2021
When you participate in a payroll deduction program through your employer, deductions can be taken from your payroll before calculating your taxable federal income, FICA (Social Security and Medicare) tax and for most states, taxable state income. By taking deductions pre-tax, you reduce the dollars on which you are taxed and, as a result, reduce your total tax bill.
