Annual Election and Dollar Commitment with a Use-It-or-Lose-It Provision
At the annual plan renewal date, each employee must decide
whether he or she wants to participate in the plan for the
coming year. An employee who decides to participate must also
decide how much is to be withheld from his or her paycheck
each month. This, at best, is an educated guess as to how
much of the deductible and coinsurance amounts might be
required, what other qualifying expenses such as dental and
vision will be used, and what dependent day care costs will
be. This amount cannot be changed during the year except for
certain qualifying events. Any funds left in an employees'
account 2 1/2 months after the end of the year are lost* and
belong to the employer. The employer can only use those funds
for the benefit of all employees, as would be the case for an
office party or dinner for all employees.
NEW - IRS Notice 2005-42
Employees Save on Income Taxes Giving Them an Effective Pay Raise
An employee saves money by not having to pay income tax on the money
withheld for the FSA. Let's say an employee is in the 30% tax bracket
for payroll withholding tax purposes. That means the employee's paycheck
would increase $30 for every $100 put in the FSA each month compared to
spending the same $100 without an FSA plan in place. The $30 increase
comes from savings on income taxes that would otherwise be paid.
Employers Save on Payroll Taxes by Reducing Taxable Payroll
An employer reduces his payroll for payroll tax purposes by
the amount of employee contributions to the plan. This savings
on FICA and FUTA taxes amounts to a 7.65% savings. The employer
would reduce his tax bill by $76.50 for each $1,000 contributed
to the plan by his employees.
Employers Must Meet Two Tests on a Yearly Basis
An employer must meet the Key Employee Concentration Test
and the Highly Compensated Employee Average Benefit Test on
a yearly basis. This is designed to prevent excessively
benefiting a select few. A Third Part Administrator (TPA)
usually handles these details.
We Offer Two Options
AFLAC provides "free" assistance in setting up premium
only accounts and charges fees for administering an account
that includes a fund requiring reimbursements. The term
"free" is contingent on an AFLAC representative meeting
with employees and placing at least three small supplemental
policies in the group. Manley Services is a fee based Third
Party Administrator (TPA) we work with because of their
excellent service. There are others in Oregon to choose from.