Flexible |
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Spending
Accounts |
Effective January 1, your
benefits program will include two valuable new features that offer you
significant tax advantages: a Health Care Flexible Spending Account and a
Dependent Care Flexible Spending Account.
The Flexible Spending
Accounts, or FSAs, provide a tax‑advantaged way for you to pay for health
and dependent care expenses not reimbursed by your benefit plans, allowing you
to save money on the cost of these goods and services. There are two separate FSAs: one for health
care expenses, and one for dependent care expenses. You can participate in
either one or both of these accounts.
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The FSAs Let You Save |
The FSAs let you save on
taxes on health and dependent care expenses not reimbursed by your benefit
plans. The way it works is
simple. The amount you elect to
contribute to the FSA(s) is taken from your pay on a pre‑tax basis,
before federal, state, and city income and social security taxes are
withheld. Your FSA contribution is
then directed to your Flexible Spending Accounts. When you incur dependent
care expenses, or health care expenses not covered by your benefit plans, you
are reimbursed from the appropriate FSA |
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How the Tax Savings Work |
Each dollar you put into a
Flexible Spending Account is a dollar not taxed. If, for example, you pay approximately 30% of your income in
federal, state, and city income and Social Security taxes, by using an FSA you
would save 30% on the health or dependent care expenses you pay for from your
FSA. The following example will
help you appreciate the tax savings offered by the FSAs. (For simplicity, the
example assumes you pay a flat 30% in federal, state and city income and
Social Security taxes.) The example assumes you spend $3,000 on health and
dependent care expenses, and therefore decide to contribute $1,000 to the
Health Care FSA and $2,000 to the Dependent Care FSA. |
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How the Tax Savings Work (continued) |
Without With FSAs
FSAs Annual salary $ 50,000 $ 50,000 Health & dependent care expenses (paid through the FSAs) — $ 3,000 Taxable salary $ 50,000 $ 47,000 Taxes (30%) $ 15,000 $ 14,100 Health & dependent care expenses (not paid through the
FSAs) $ 3,000 $ — Take-home pay $ 32,000 $ 32,900 Savings (30% of money contributed to FSAs) $ 900 As you can see, by paying
for your expenses through the FSAs you save 30%. With both methods you spend
$3,000 on health and dependent care expenses, but using the FSAs leaves you
with $900 more in take‑home pay.
This is the money you would have spent in taxes on the $3,000 if you
had not used the FSAs. The $3,000 in
expenses really cost you $2,100, or 30% less. |
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THE HEALTH CARE FSA |
The Health Care FSA is for
medical, dental, and other eligible health care expenses which are not
reimbursed by a health care plan through which you have coverage. |
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How Much You Can Contribute |
Each plan year, January 1 to
December 31 you may elect to contribute up to $5,000 to your Health Care
FSA. Since there are 26 pay periods
in a plan year, the maximum amount you can contribute to the Health Care FSA
each pay period is $192.31. The minimum amount you can
contribute to the Health Care FSA is $3.85 per pay period. Since there are 26 pay periods in the plan
year, the minimum amount you can contribute to the Health Care FSA this year
is $100. |
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Eligible Expenses |
The Health Care FSA is for
expenses which are not reimbursed by a health care plan. In general, any health care expense that
qualifies as a deduction on your federal income tax return is considered
eligible for reimbursement from your Health Care FSA. The list below shows some
common eligible Health Care FSA expenses: ·
your share of expenses, such as co-payments and deductibles, if
applicable, under your benefit plans or any other health care plan in which
you have coverage, including your spouse’s medical plan; ·
vision care expenses, such as eye exams, eyeglasses, or contact
lenses; ·
hearing exams and hearing aids; ·
dental care expenses; and ·
any other expense which would qualify as a medical deduction on your
tax return (also see "Ineligible
Expenses" below). An expanded list of
eligible expenses appears on page 10. |
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Ineligible Expenses |
If your medical expenses
exceed 7½% of your adjusted gross income, the government allows you to take a
tax deduction for these expenses on your tax return. However, if you are reimbursed for an
expense through the Health Care FSA, you may not claim the same expense as a
deduction on your federal income tax return.
In other words, for any given
expense you can use either tax‑saving method (the Health Care FSA or
the deduction, if allowable), but not both. Some examples of expenses not eligible for reimbursement through
the Health Care FSA include non‑medically supervised programs to stop
smoking or lose weight, non‑medically necessary cosmetic surgery, non‑prescription
sunglasses, non‑prescription drugs, premiums for other medical plans,
and donations to voluntary health care services. |
DEPENDENT CARE FSA |
The Dependent Care FSA can
be used to reimburse yourself for dependent care expenses which enable you,
or if married, both you and your spouse, to work. |
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How Much You Can Contribute |
Each year, you can
contribute up to $5,000 of your salary to your Dependent Care FSA if you’re married
and file a joint return, or if you are single. If you’re married and file separate income tax returns, the
maximum you can contribute to your Dependent Care FSA is $2,500. In that situation, your spouse may
contribute up to $2,500 to another Dependent Care FSA, if one is available
through his/her employer. The minimum amount you can
contribute to the Dependent Care FSA is $3.85 per pay period. Since there are 26 pay periods in the plan
year, the minimum amount you can contribute to the Dependent Care FSA this
year is $100. Your contribution amount
cannot be greater than your earned income or your spouse’s earned
income–whichever is less. Earned
income is the salary remaining after all deductions are made for taxes
(including Social Security). If your
spouse is a full‑time student, or mentally or physically incapable of
self‑care, the Internal Revenue Service (IRS) considers your spouse’s
earned income to be $200 a month. If
you have two or more dependents, your spouse is assumed to earn $400 a month. |
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Eligible Expenses |
You can use the Dependent
Care FSA to reimburse yourself for expenses which you incur to care for your
eligible dependents while you work.
If you are married, your spouse must also work, be a full‑time student,
or be disabled. To be eligible for
reimbursement through the Dependent Care FSA, dependent care expenses must be
incurred to care for: ·
children under age 13 whom you are entitled to claim as dependents on
your federal tax return; and/or ·
a disabled spouse or other disabled dependent who spends at least
eight hours a day at your home. Eligible dependent care
expenses include charges for the following services: ·
Care at licensed nursery schools, kindergartens, day camps (not
overnight camps), and child care centers which provide day care. To qualify, the school or center must
comply with state and local laws, serve at least seven individuals, and
receive a fee for its services. ·
Services from individuals, other than a dependent of you or your spouse’s
or children under age 19, who provide care in or outside your home (not
routine baby-sitting, such as for going to a movie or out to dinner). ·
Household services (related to the care of the elderly or disabled
adults or children who live with you) provided by a housekeeper, maid, cook,
etc., as long as the individual is partly responsible for the well‑being
and care of your qualified dependents. Please Note: If you use the
Dependent Care FSA, the IRS requires that you provide the name, address and
Social Security or other tax identification number of your care provider. |
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Ineligible Expenses |
Expenses not eligible for reimbursement through
the Dependent Care FSA include: ·
services provided by your spouse, by a child of yours younger than age
19, or by a dependent whom you claim as an exemption for federal income tax
purposes; ·
nursing home or custodial care; ·
overnight camp expenses; ·
baby-sitting expenses when you are not working; ·
tuition expenses for schooling in the first grade or higher; and ·
expenses that you claim under the Dependent Care Tax Credit (see the
following section). |
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Dependent Care Tax Credit |
You may already be familiar
with one way to save on child care expenses–the federal income tax credit for
child care expenses. You may use the tax credit or the Dependent Care FSA for eligible
dependent care expenses. You may not, however, use the tax credit
and the Dependent Care FSA for the same expenses. Furthermore, any contributions to the
Dependent Care FSA will reduce–dollar for dollar–or eliminate your tax
credit. In general, you will find
that the Dependent Care Spending Account offers more tax savings to you than
the tax credit. However, your tax situation may be different, so
you may want to consult a tax advisor to determine the best strategy for your
circumstances. Please Note: If you use the federal income
tax credit, the IRS requires that you provide the name, address and Social
Security or other tax identification number of your care provider. |
OTHER IMPORTANT INFORMATION
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How To Enroll In the FSAs |
To enroll in the flexible spending
accounts, simply fill out the attached enrollment form indicating how much
(if any) of your salary you’d like to contribute to the Health Care FSA
and/or the Dependent Care FSA for the plan year, January 1 to December 31. In December you will be given an
opportunity to change your elections for the next plan year. Completed
enrollment forms should be returned to Carol Lewick by December 20. |
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REMEMBER: Enrollment
forms are
due December 20! |
Each year, you elect to contribute a certain
amount per pay period to your FSA.
There are 26 pay periods in the year.
For example, if you contribute $192.31 to your FSA each pay period, a
total of $5,000 of your salary will be redirected to your FSA. The worksheets at the end of this brochure will help you estimate our expenses. Your maximum and minimum contribution amounts are described in the “How Much You Can Contribute” sections on pages 2 and 4. |
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When estimating your expenses,
keep in mind that there are certain predictable expenses that you should
consider. For example, you may
routinely pay for annual check‑ups for you and your family. If you typically satisfy your plan's
deductible each year, you can count that amount as a predictable expense you
should fund through the Health Care FSA. |
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How To File a Claim |
When you incur a health or
dependent care expense, you first pay for the service or product. Then you file a claim for reimbursement from
the appropriate FSA. Claim forms are
available from the Human Resources Department. |
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Include the Proper Documentation |
When filing a claim, be
sure to include the proper documentation: |
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Health Care Expenses |
·
for expenses not covered under any benefit plan, include an itemized
bill or receipt. ·
for expenses covered only partially by a benefit plan, include the
"EOB" (Explanation of Benefits) form. This form verifies the amount that was not reimbursed by your plan. If you and your spouse are covered under
different medical plans, you must submit the EOB forms from both plans. |
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Dependent Care Expenses |
original bills or receipts showing the name
and taxpayer ID or Social Security number of the care provider (bills should
state date and type of service, and for whom the service was provided). |
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About Reimbursements |
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Reimbursement checks will
be made out in your name; checks may not
be made out to a provider, such as a doctor, hospital, etc. For Dependent Care FSA
claims, you will be reimbursed up to the amount actually in your FSA account
at the time your request is received.
If your claim exceeds your current FSA balance, you will initially be
reimbursed for the amount of your balance.
Then, as additional money is contributed to your account, you will
continue to be reimbursed automatically for the amount in your account until
your entire claim is paid (up to the limit, of course, of the total amount
you elected to contribute to the account). For Health Care FSA
claims, you can be reimbursed up to the amount you elected to contribute to
the Health Care FSA. The minimum claim amount
you can be reimbursed for is $25 at any one time. However, this minimum does not apply at the end of the
year. Reimbursement checks will be
issued every two weeks. |
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Reimbursement Deadline |
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You will have until March
31 to submit claims for expenses incurred in the prior plan year. After March 31 any money remaining in your
FSA account(s) will be forfeited. |
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Special
Limitations |
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The IRS imposes certain restrictions upon the
Health Care FSA and the Dependent Care FSA, which are outlined in this
section. |
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“Use It or Lose It” |
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The IRS requires that any
money remaining in your FSA account(s) at the end of the plan year (December
31, 2000) will be forfeited unless
applied to eligible expenses for that given plan year by March 31, 2001. In other words, if you do not use this money,
you will lose it. Therefore, it is
important to estimate your FSA expenses carefully. The worksheets at the end
of this brochure will help you do this. |
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Elections Once A Year |
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Each December, you will be
given an opportunity to make new contribution elections for the next plan
year. The IRS requires that the
amount you choose to contribute to your Health Care FSA and/or Dependent Care
FSA, if any, cannot be changed during the plan year unless you have a family
status change. In addition, any
change in election must be consistent with your family status change. Some of the changes in family status
include the following: ·
marriage or divorce ·
birth or adoption of a child ·
death of a dependent or a spouse ·
a child ceases to be an eligible dependent under the Plan ·
the beginning or ending of your spouse’s employment ·
a change from full‑time to part‑time employment, or vice
versa, for you or your spouse which results in a significant change in
insurance coverage; and ·
an unpaid leave of absence taken by you or your spouse. |
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Eligible Expenses |
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Only expenses for services
that you incur during the plan year while you are an active participant are eligible
for reimbursement from your FSA(s). This means that for each year you
participate in an FSA, you can use the FSA to pay for services incurred only during that plan year. As explained
in “Reimbursement Deadline” on page 7, you have until March 31 of the
following plan year to send in claims for your FSA expenses. |
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Separate Accounts |
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The Health Care FSA and
the Dependent Care FSA are separate accounts; money cannot be transferred between
accounts, and you cannot use the Health Care FSA to pay for dependent care
expenses, or vice versa. |
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Your Other Benefits Are Not Affected |
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Participation in the
FSA(s) will not affect your other benefits which are based on your pay, such as
benefits under the Life and Disability Plan.
These benefits will continue to be calculated on your unreduced
salary. |
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Social Security Might Be Affected |
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Since you do not pay
Social Security taxes on your FSA contributions, your future Social Security
benefit could be slightly reduced. Although this reduction will usually be
quite small, it could occur if your taxable salary falls below the Social
Security wage base ($76,000 for 2000). However, the immediate tax benefit of
the FSAs should far exceed the small loss of future Social Security benefits. This brochure highlights
your new benefits. Although every
effort has been made to ensure the accuracy of the information described
here, if there is any conflict between this announcement and the Plan
documents, the Plan documents will govern. If you have any questions
about the benefits discussed in this newsletter, please contact Carol Lewick |
Your Health Care Flexible Spending Account Worksheet
This worksheet will help you estimate your qualified health care expenses for the plan year. Because of the “use it or lose it” rule explained on page 7, you should be conservative in your estimates. Below are some of the areas of expense you should consider when making your estimates (a complete list of allowable expenses appears on the following page