Tax
savings can be taken now with a mid-year FSA plan
Dealing
with progressively more expensive employee benefits is not easy for employers or employees.
Many employers might overlook taking additional steps to save money with their healthcare
once a new plan year has started.
Employers
do not need to wait and can begin saving now by implementing a Flexible Spending Account
(FSA) that provides benefits for both the employees and employer.
Employers,
working with Infinisource to offer an FSA plan, help themselves by saving thousands
annually through decreased payroll taxes. Employees are able to increase spendable
income while gaining a powerful resource to handle rising medical costs. An FSA works
in conjunction with other benefit plans to save tax dollars. It allows participants
to earmark money for certain expenses such as deductibles, co-payments and day care.
These are all great reasons to start an FSA plan now instead of waiting for a new
plan year and according to IRS regulations, a transition plan year of less than 12
months in duration is allowable.
The
most common short plan year will be the first transition plan year. This occurs when
an employer wants to implement an FSA plan mid-year, yet, in following years want
the FSA plan to be on a calendar plan year making the first plan year a short one
(less than 12 months).
For
example, Employer As health plan renews on July 1 and will be increasing both prescription
and office visit co-payments. Employer A will be implementing an FSA plan to help
employees offset the increased out-of-pocket costs. Employer A would prefer to have
the FSA plan run on a calendar year basis, as opposed to a fiscal year. In this case,
Employer A can implement the FSA plan effective July 1, and run a short 6-month transitional
plan year from July 1 to December 31. At open enrollment, the employees will then
elect to participate in the subsequent 12-month calendar plan year.
When
employers implement a short plan year, communications to employees are critical regarding
election amounts. Emphasis should be placed on planning elections based on expenses
for the short plan year and to carefully calculate the number of pay periods remaining
in that plan year. For example, in the scenario above, if Employer A has a semi-monthly
pay cycle, employees should plan for expenses in the upcoming 6-month plan year, and
divide by 12 (rather than 24). This will give them the number of paychecks and what
the payroll deduction amount will be, based upon their election total.
The
regulations also allow for a short transitional plan year where the plan year is being
changed. For example, Employer B currently has a calendar plan year for the FSA plan,
but they want to change their plan year beginning date to a fiscal plan year to coincide
with the renewal of their underlying medical plan. This is permissible. However, its
unadvisable to do this in the middle of a plan year where participants previously
elected based on a 12-month plan year. An employee may have made an FSA election in
anticipation of medical expenses planned for the end of the plan year. A safer method
would be to change the plan year prospectively and notify the employees during open
enrollment that the upcoming plan year will be a short plan year in order to change
the beginning date of the plan year.
Infinisource provides a tax-savings
calculator for both the employee and employer to view what type of savings they
could gain with an FSA. In addition, our full-service FSA Administration offers client
and participant materials and 24/7 participant access to account information.
With an FSA from Infinisource, employers will receive:
- Quick claims adjudication and turnaround for health and dependent care expenses
- Direct deposit
- Nondiscrimination testing
- FSA enrollment support
- Certified Flexible Compensation (CFC) experts on staff
- Toll-free call center
- 24-hour web resources
- Debit card
- Benefits industry news
Another option for an employer and employees to save money without implementing a
Health FSA would be to provide a Premium Conversion Plan, the simplest type of Section
125 cafeteria plan. This type of plan enables
employee contributions for employer-sponsored benefits to be paid using pretax dollars,
providing them with a reduction in federal income taxes, FICA payroll taxes and state
income taxes while increasing take-home pay.
This plan reduces the employers payroll tax liability while at the same time provides a
positive, added benefit to employee benefit packages with little or no cost to the
company.
The
Infinisource Premium
Conversion Plan includes:
- Employee enrollment support
- Summary Plan Description and Plan Document
- Expert assistance from our Customer Response Team
- Benefits and FSA program consultation
- Nondiscrimination testing forms and guidelines
- Premium Conversion Plan charts and worksheets showing employee tax saving benefits of participation
- Access to employer and employee frequently asked questions
- Enrollment presentation to increase participation
Infinisource also offers Dependent Care FSA, which covers eligible dependent care
expenses incurred to allow the participant, or if married, the participant and spouse
to work or look for work (i.e., child care expenses).
For
more information on what is available, along with ability to see what employers and
employees can save with these accounts, visit our website www.benefitsolved.com and
view information available to assist with an FSA Plan or call 800-779-6384.
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