More About the Flexible Spending Accounts
The following information describes tax considerations, what happens to your benefits should you leave the Company, and situations in which you may continue your coverage.
When you file your taxes, you have the option of taking a federal income deduction or credit for your health care and dependent care expenses, respectively. Any expenses reimbursed from your spending accounts cannot be deducted when you file your income tax return. Since you have set aside these dollars before taxes are calculated and withheld, these reimbursed expenses are already "tax-free."
Currently, only health care expenses over 7-1/2% of your adjusted gross income are deductible for income tax purposes. But with the spending account, you can save taxes on the very first dollar not reimbursed by your dental or vision plan.
You may use your day care expenses to claim a child care credit when you file your federal tax return. The child care credit means that you use a special formula to determine the amount of any credit for which you qualify. The credit is then subtracted from any tax you owe. You cannot claim the same expenses for a tax credit and for reimbursement under the FSA. But child care expenses that are not reimbursed through your FSA may still be eligible for the child care credit on your income tax form. However, any amount you receive through the FSA reduces on a dollar-for-dollar basis the expense amount that you can consider when calculating the tax credit.
Since your contributions are made before you pay Social Security taxes, your earnings for Social Security purposes may be slightly reduced. Your income tax savings, however, should be more than any reduction in your Social Security benefits.
The IRS applies certain restrictions to the amount of benefits certain highly compensated employees can receive. If you are affected by these restrictions, the plan administrator will notify you.
A tax advisor can help you determine the best alternative for your situation.
Some of your other benefits, such as life insurance and disability, are based on your gross pay. Those benefits will continue to be based on your gross pay, before your FSA contributions are subtracted.
As previously noted, the amount of your future Social Security benefit may be slightly reduced because both you and the Company will pay Social Security taxes on your pay after FSA contribution amounts have been subtracted.
Your participation in this plan will end on the earliest of the following dates:
- When you terminate employment with the Company
- When the plan is amended to terminate coverage for the group of employees of which you are a member
- When you are no longer a member of the group of employees eligible to participate
- When you die
- When you elect in writing to discontinue participating for the next Plan Year
When your participation ends (i.e., you terminate employment, retire, or die during the year), you will be able to receive reimbursement for:
- Dependent care expenses incurred during the current plan year, up to the amount of your account balance at the time your participation ends. You may file claims for reimbursement until March 31 the year following the current plan year.
- Dental and vision expenses incurred through the date your participation ends (i.e., termination date, etc.), up to the annual amount you elected to contribute to your Limited FSA, less year-to-date claims. You may file claims for reimbursement until March 31 the year following the current plan year.
Family And Medical Leave Act. If you take a leave of absence for certain reasons, such as to care for a sick family member or due to your own illness, you may be able to continue coverage under the plan. At the end of the qualifying leave of absence, you can also have your previous benefits reinstated on the date you return to work, assuming you pay any required contributions. Contact the Benefits Department for more details.
Continuation Of Coverage (COBRA). Federal law allows you to pay contributions to your Limited FSA (plus 2%) on an after-tax basis after your employment ends. This means you can keep access to your annual election amount for the remainder of the year.
You may not continue to contribute to your Dependent Care FSA after you leave the Company.
For more details refer to Continuation of Coverage.