As a general rule, an employer may not take a tax deduction for flexible spending account (FSA) benefits until the benefits are provided to employees. Thus, no deduction may be taken at the time of the employee’s salary reduction. Moreover, employers who transmit salary reduction amounts to a third-party administrator (TPA) for administration of claims should be careful not to base the timing of deductions on when the amounts are transmitted.
Likewise, the employer may not take a tax deduction when a forfeiture occurs. Rather, deductions will arise when benefits are provided, or amounts are applied against permissible administrative expenses. The timing of an employer’s deduction should not be confused with its accrual of liability from a financial accounting standpoint. For financial accounting purposes, the employer’s liability for health FSA benefits accrues as of the first day of the coverage period (e.g., the plan year), due to the application of the uniform coverage rule. For DCAPs, the liability accrues when the salary reductions occur.
Self-insured medical benefits are governed by similar rules. If not paid from a trust, an accrual-basis taxpayer can deduct them in the year in which the expenses are incurred, even if paid in a later year. In contrast, a cash-basis taxpayer would deduct only when the expenses are paid. Likewise, premiums for insured benefits are deductible when accrued or paid, depending on whether the employer is an accrual-basis or cash-basis taxpayer. The deduction rules for a self-insured health plan that pays benefits from a trust or other “welfare benefit fund” are more complicated and are subject to limitations to prevent excess prefunding.
Certain entities that do not pay corporate taxes, such as governmental employers and nonprofits, can sponsor cafeteria plans without worrying about deductions as such, although these entities may recognize the costs of their plans on a similar accrual or cash basis.
The HSA Store is a fantastic outlet for consumers to buy eligible products to fit their HSA account. With over 4,000 products on hand — from allergy medicines, CT scans, mammograms, and thermometers – it’s a guarantee to find at least one product to enjoy.
To best utilize the virtual store, search any HSA eligible item you need for purchase. From there, add a promo code to any purchased HSA eligible item. All promo codes can be turned into points for future purchases.
The smallest denomination of points that can be redeemed for later use is 350 ($10) and largest is 1,500 ($50). You cannot redeem fewer than 350 points at a time. Balances under 350 points cannot be exchanged for a partial value dollar reward. Points expire six months (180 days) following your last order date. To learn about all HSA Store eligible items, look here.
As you may know, a Flexible Spending Account, or FSA, is an account for you to set aside pre-tax dollars to pay for eligible medical, dental, and vision expenses. But did you know there are different types of FSA plans? The first is a Dependent Care FSA, which is ideal to ensure dependent care costs are taken care for either a child under the age of 13 or if a spouse/dependent is unable to care of themselves.
This plan works as long as both spouses or custodial parents are employed. From there, you can contribute up to $5,000 pre-tax dollars per calendar year to pay for expenses such as: day care (child & adult), summer day camp (nursery school & preschool) plus before and after school programs.
The second plan to note is a Healthcare FSA, which is more straightforward. This plan allows you to contribute up to $2,850 annually to pay for eligible medical, dental, prescription, and vision expenses not covered by insurance. With the Healthcare FSA, the entire contribution election is available from day one. All payroll contributions throughout the year will go towards covering that individual’s election.
To familiarize yourself with the different types of FSA plans, check here.
A Health Reimbursement Arrangement (HRA) is an account funded by your employer that helps pay for qualified medical expenses acquired throughout a plan year. Here’s how you can benefit by participating in one.
You can use HRA account fund dollars to pay for doctor visits, copay, prescription drugs, and hospital services.
The funds in your account could be available from day one. They could also only be available as the employer deposits them into the HRA or any combination thereof. This will differ from employer to employer, as there are many different plan design options in a group HRA setting.
Funds that remain in your HRA at the end of the plan year may be carried over to the next year.
You can add HRA funds to your NueSynergy debit card to pay your providers for necessary healthcare expenses depending on plan design. In other cases, you will be able to file a claim for reimbursement and receive a refund for the expense from the HRA and into your personal bank account.
To learn more about an HRA and all of its utilizations, check here.
This week, the IRS released 2023 cost-of-living adjusted limits for health savings accounts (HSAs), high-deductible health plans (HDHPs), and excepted benefit health reimbursement arrangements (EBHRAs). All of these limits have increased from 2022. Everything you need to know about each limit increase is stated in our press release, which is down below.
The IRS has released an information letter responding to an inquiry from a qualified transportation plan participant whose employer decided to let him work from home permanently due to the COVID-19 pandemic. To avoid losing compensation reduction amounts he had previously set aside for parking, the participant asked whether his unused compensation reductions could be transferred to a health FSA under a cafeteria plan.
The letter explains that unused compensation reduction amounts under an employer’s qualified transportation plan can be carried over to subsequent periods under the plan and used for future commuting expenses, so long as the employee does not receive benefits that exceed the maximum excludable amount in any month. But cash refunds are not permitted, even to employees whose compensation reduction amounts exceed their need for qualified transportation fringe benefits. Furthermore, the Code prohibits cafeteria plans from offering qualified transportation fringe benefits, and IRS rules do not permit unused compensation reduction amounts under a qualified transportation plan to be transferred to a health FSA under a cafeteria plan. The letter also notes that COVID-19-related relief for FSAs gives employers the discretion to amend their cafeteria plans to permit midyear health FSA election changes for plan years ending in 2021.
EBIA Comment: The qualified transportation rules have proven sufficiently flexible to handle most situations resulting from the COVID-19 emergency. Most employers permit benefit election changes at least monthly, and plans can allow current participants to carry over unused balances indefinitely. Compensation reductions set aside for one qualified transportation benefit (e.g., parking) can even be used for a different transportation benefit (e.g., transit) if the plan permits and the maximum monthly benefit is not exceeded. But—as this participant’s request to transfer parking compensation reductions to a health FSA suggests—those options are not always sufficient. Because some risk of loss due to changing circumstances is unavoidable, employers should clearly articulate that risk to employees before they make compensation reduction elections.
