Flexible

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.

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
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.
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.
	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.
	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.
	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.
	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.
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.
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.
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).
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

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.
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.
		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.
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.
	Include the Proper Documentation	When filing a claim, be sure to include the proper documentation:
	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.

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).
About Reimbursements		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.
Reimbursement Deadline		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.
Special Limitations		The IRS imposes certain restrictions upon the Health Care FSA and the Dependent Care FSA, which are outlined in this section.
“Use It or Lose It”		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.
Elections Once A Year		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.
Eligible Expenses		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.
Separate Accounts		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.
Your Other Benefits Are Not Affected		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.
Social Security Might Be Affected		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