What is a Flex, FSA or Cafeteria Plan?

A Cafeteria Plan (authorized under IRS Code § 125) is a written benefit plan maintained by a company for the benefit of its employees. These plans are often referred to as Flex Plans, FSA Plans or Flexible Spending Accounts.

As a participant, you can pay your portion of certain nontaxable benefits (i.e. health and/or dental insurance premiums) with before-tax dollars by salary reduction rather than with after-tax dollars through payroll deduction. In other words, you can have your payment for qualified benefits deducted from your paycheck before your employer calculates your payroll taxes.

You can also pay for certain medical and dependent care expenses with pre-tax dollars by setting aside additional funds through salary reduction thereby further reducing your taxable income and the total amount of taxes you pay.

A Flex Plan can offer the following types of benefits:

• Pre-Tax Premium Contributions for Health and/or Dental Plans offered through your Company
  
• Medical Expense Reimbursement Account (Health FSA)
  
• Dependent Care Assistance Plan (DCAP)
• Transit and Parking Expense Reimbursement Plan

How will a Flex Plan benefit me?

By participating in a Flex Plan, you will not have to pay State or Federal income tax or Social Security on your elections! Uncle Sam does not get a share of the money! Let us look at one employee and see how he saved on taxes by participating in a Flex plan. Here is the employee's situation:

• Salary: $2,500 a month
  
  
• Withholding: 28% for federal withholding and 7.65% for Social Security
  
  
• Before participation in the Flex plan, the employee paid the following:
  
  
  • Monthly premium for health insurance: $348
    
    
  • Out-of-pocket medical expenses: Monthly average of $100
    
    
  • Day Care Expenses: $200 a month

The employee decided to pay for the premiums through the Flex plan, to put $100 a month in a Health FSA and $200 a month into the Dependent Care Expense Plan.

To see how this employee saved $230 a month or $2,760 a year by participating in his Flex plan, click here.

What expenses are covered under a Flex plan?

Examples of Medical Expenses Eligible for Reimbursement with a Flexible Spending Account:

Acupuncture
Alcoholism Treatment
Ambulance
Artificial Limbs
Birth Control Pills or Devices
Braces
Braille - Books and Magazines
Car Controls for the Handicapped
Chiropractors
Co-Insurance Amounts You Pay
Contact Lenses
Crutches, Canes and Walkers
Deductible Amounts Payable under your Health and/or Dental Plans
Dental Fees
Dentures
Dermatologists
Diagnostic Fees
Donor Testing and Fees
Eye Exams
Eyeglasses
Fees for Practical Nurse
Hearing Devices and Batteries
Home Improvements Necessitated by Medical Conditions (i.e., Wheelchair Ramp)
Hospital Fees
Insulin
Laboratory Fees
Nurse's Fees
Obstetrical Expenses
Orthodics
Orthodontics
Oxygen
Physician's Fees
Prescription Medicines
Psychiatric Care
Psychologist's Fees
Physical Therapy
Service Animal and its Upkeep
Special Education for the Handicapped
Special Plumbing for the Handicapped
Sterilization Fees
TTY Telephone for the Deaf
Television Equipment (Closed Caption) for the Deaf
Therapeutic Care for Drug and Alcohol Addiction
Transportation Expenses Incurred for Medical Treatment
Wheelchairs
Wigs (When deemed medically necessary for the mental well being of cancer and alopecia patients.)
X-rays

Printable List

Examples of Accepted Over-The-Counter Items Eligible for Reimbursement with a Flexible Spending Account:

Acne Medications
Allergy Medications
Ammonia Stimulants
Antacids / Prilosec
Anti-Diarrhea Medications
Antifungal Treatments
Anti-Itch Lotions
Antiseptic Wash or Ointment
Arthritis Pain Reliever
Asthma Inhalers / Bronchodilators
Bunion and Blister Treatments
Cholesterol Test Kits
Cold & Flu Relief Medications
Cold Sore and Fever Blister Medications / Orajel
Colorectal Cancer Screening Tests
Contact Lens Solutions
Corn and Callus Removal Medications
Denture Adhesives
Diabetic Supplies
Diaper Rash Ointment
Diuretics
Ear Drops
Eczema Cream
First Aid Wipes
Gas Prevention Enzymes
Hemorrhoid Medications
Home Drug Tests
Hydrogen Peroxide
Incontinence Supplies
Iodine
Ipecac Syrup
Laxatives
Lice Control
Medicated Bandages
Medicated Bath Products
Medicated Chest Rub
Medicated Cough Drops / Cough Syrup
Motion Sickness Tablets
Nasal Decongestants / Sinus Medications
Ovulation Indicators / Pregnancy Tests
Pain Relief Medications
Rubbing Alcohol
Wart Removal Medications

These are examples only. For eligibility of any specific expense, consult a qualified tax advisor.

Printable List

Can I change my elections during the plan year?

Your elections cannot be changed during the Plan Year unless one of the following events occurs:

• Changes in Status
  
  • Change in marital status
    
  • Change in the number of dependents
    
  • Change in employment status
    
  • Dependent's satisfying or ceasing to satisfy dependent eligibility requirements
    
• Addition or Improvement of Benefit Package Option
  
• Change in Coverage of Spouse or Dependent under Another Employer Plan
  
• Loss of other health coverage
  
• FMLA Leave
  
• COBRA qualifying event
  
• Judgment, decree, or order
  
• Entitlement to Medicare or Medicaid

The change in your election must be "consistent" with your change in status. For example, if you or your spouse were to go from part time to full time employment, you could increase your Dependent Care election; if you or your spouse were to go from full time to part time employment, you could decrease your Dependent Care election.

How do I enroll?

Your employer may elect to have you enroll online. If so, you will receive an email with the link to the enrollment page and detailed instructions for logging in and making your election(s).

Otherwise, you will receive an enrollment kit including information on the Plan itself and the benefits your employer is offering. Included will be a Flex Plan Election Form, and a Direct Deposit Authorization Form. Complete both forms and return them to your Benefits Administrator by your enrollment deadline.

What happens if I do not return my Election Form?

If you are not currently enrolled in the cafeteria plan, it will be assumed that you do not wish to participate.
If you are currently enrolled in the cafeteria plan, it will depend on your current elections.

• If you currently have elected insurance premium benefits, it will be assumed that you want to continue these elections, and your deductions will be continued for the next plan year.
  
  
• If you currently have elected a Health FSA or Dependent Care Assistance Plan it will be assumed that you do not want to continue participation in these accounts and your deductions will cease at the beginning of the next plan year.

What are the maximum elections allowed under the plan?

The maximum election for the dependent care is $5,000 per year per family. Your employer will set the maximum election amount for the medical expense account.

How often are claims processed?

Claims are processed daily and reimbursements are paid weekly.

What happens with the money left in my account at the end of the plan year?

Employees have until the end of a runout period, usually 90 days past the end of the plan year, to submit claims incurred during the plan year. Employees who do not claim their elected benefits by the end of the runout period will forfeit any balance(s) in their account(s). Any remaining funds will be retained by the employer. Most employers use this money to offset the administrative costs of the plan.

Some plans offer a grace period of up to two and one half months to incur claims after the end of the plan year. Check with your benefits administrator to see if you company offers a grace period.

Are there any ineligible employees?

Yes, partners, 2% owners of "S" corporations, LLC members and in some cases, their direct family members are not eligible to participate.