Flexible Spending Accounts In Depth

Flexible Spending Accounts

Who is Eligible?

Full time, regular or term faculty and staff
Part-time, regular or term, faculty and staff

A Summary of Flexible Spending Accounts (FSA)

Southeast Missouri State University offers faculty and staff the opportunity to participate in two Flexible Spending Accounts.

Medical Reimbursement Account
Dependent Care Assistance Account

The Flexible Spending Account, authorized under Section 125 of the Internal Revenue Code, allows you to pay certain expenses from your pre-tax income rather than after-tax income.

Flexible Spending Accounts are simple to use. You allocate the annual dollar amount(s) you wish to direct to your account(s). This amount will be taken from your before-tax earnings and placed into the account(s) you select. This amount will be taken in equal increments from your paychecks throughout the year. Then, as you incur eligible expenses throughout the year, you can use the Flexible Spending Accounts to reimburse yourself, tax free.

Using the Flexible Spending Accounts (FSAs)

FSA contributions come from your before-tax income. Any amount you contribute is tax-free from Federal, State and Social Security taxes. Additionally, the reimbursement you receive is tax free. Fewer taxes mean more spendable income to you.

When estimating the Medical Reimbursement and Dependent Care Account contributions, examine your expenses from the previous year. Consider the use of federal health care tax credits and dependent care tax credits. In general, FSA for dependent care provides the best saving if your total income is more than $24,000. However, consult your tax advisor for the option best suited for your specific situation.

Click here for more information regarding allowable and non-allowable health care expenses under the FSAs.

Special Warning Notification

Your choices under the Medical Reimbursement Plan or Dependent Care Assistance Plan are irrevocable except as determined by IRS rules. If you have money left in either account at the end of the fiscal year for which you can make no claim, it will be forfeited. For these reasons, you must exercise great care in making your decision to participate in either account and great care in determining the amount of money you wish to set aside.

Considerations

Because FSAs are not taxed, the IRS has issued strict rules and guidelines about their use. Before making the decision to contribute, consider the following three important IRS rules:

Accounts Are Separate - Medical Reimbursement Account holds contributions for eligible medical care expenses not covered by the medical insurance.

Dependent Care Assistance Account holds contributions for eligible child care and eldercare.

Calendar Year Basis - The funding and use of the FSAs are governed strictly on a calendar year basis, in accordance with IRS regulations. Funds cannot be carried over from the current year into the next Plan year. Alterations may occur only if there is a change in family status.

“Use It or Lose It” Provision - Because the IRS allows you to fund your FSA tax-free, it expects you to limit your allocations to amounts you actually intend to spend. Therefore, you must use your entire FSA balance by the end of the plan year in which you set it aside, and any amount left in your account after the end of the year must be forfeited. You have until March 31 of the following year to submit claims on expenses incurred during the previous plan year.

Dependents

For the purposes of FSAs, a dependent is defined to be anyone you can claim on your taxes. Therefore, you may file a claim applicable to your FSA, and the dependent need not be covered by your medical insurance.

Enrolling

To enroll in an FSA, complete the Master Enrollment Form available from the Benefits Office during the annual open enrollment period (Oct-Nov) for coverage beginning the next year. New hires will enroll during the New Employee Benefit Orientation meeting for coverage during the remainder of their year of hire (effective June 1, 2007).

You must file your enrollment decisions within the enrollment period. Decisions are irrevocable during the plan year unless there is a change in family status.

How FSAs Will Affect Other Benefits?

MOSERS -- no effect

Social Security - Because your contribution is decreased, your social security at retirement time is reduced.

How to File for Reimbursement

Dependent Care:

To receive reimbursement, you should submit a Dependent Care Reimbursement Request form and a copy of your receipts to (by mail):

The Epoch Group
ATTN: Flex Department
P. O. Box 9030
Shawnee Mission, Kansas 66201

To email forms and receipts: flex@epochgrp.com
To fax forms and receipts: (913) 261-4166

You have until March 31, after the end of the plan year to file, to request reimbursement from your DCA. These year-end claims must be for expenses incurred during the calendar year in which you made contributions to your DCA.

Medical Reimbursement:

To receive reimbursement, you should submit a Medical Reimbursement Request form and a copy of your receipts to (by mail):

The Epoch Group
ATTN: Flex Department
P. O. Box 9030
Shawnee Mission, Kansas 66201

To email forms and receipts: flex@epochgrp.com
To fax forms and receipts: (913) 261-4166

2007 Plan Year Funds: You have until March 31, 2008 to request reimbursement from your MRA. Claims must be for expenses incurred between January 1, 2007 and December 31, 2007.

IRS Does Not Allow Reimbursement for Medications Purchases From Canada and Mexico

Because obtaining prescription drugs in foreign countries such as Canada and importing those drugs into the U.S. is currently illegal under federal law, the IRS position is that plans cannot pay for or reimburse participants for the cost of improperly imported foreign prescription drugs on a tax-free basis. However, as suggested by IRS Publication 502, if a participant legally obtained and used a prescription drug while in a foreign country, reimbursement of that expense may be proper.

IRS Allows Over the Counter Drugs in Medical Reimbursement Accounts

IRS Revenue Ruling 2003-102 provides that over-the-counter (OTC) drugs may be reimbursed through health flexible spending arrangements (FSAs). Therefore, over-the-counter (OTC) drugs will be reimbursed by the Plan in accordance with the following limitations.

Over-the-counter (OTC) drugs needed solely or primarily for medical care will be reimbursed in reasonable quantities without verification from a physician. An adequate receipt and a statement from the Participant must be submitted to the plan. The receipt must state the name of the medicine or drug, the date and the amount paid. The Participant’s statement must include the name of the patient (if not on the receipt) and need not include the precise medical condition. Click here for more information about Over-the-counter drugs.

The University reserves the right to modify or terminate such plans at any time with or without notice. Participation in these plans is provided to eligible employees and does not constitute a guarantee of employment. Participation is subject to the terms and conditions specified in the plan documents.