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Employer
What are the advantages to sponsoring and implementing a BASE® 125 Flexible Spending Account (FSA)?
What's the difference between a 125 FSA and the Premium Only Plan (POP)?
Who can sponsor a 125 FSA?
When can I implement a new 125 FSA?
What is the "use-it-or-lose-it" rule?
Employee
What is the BASE® 125 Flexible Spending Account (FSA)?
How do I benefit by participating in such a plan?
Can I make changes to the plan after the year starts?
How do I get reimbursed for my expenses?
How often will my claims be reimbursed?
What happens if I leave my place of employment where I am participating in a BASE® 125 FSA?
What expenses are eligible to be reimbursed under the plan?
What is the maximum amount of money that I can elect for reimbursement?
How can the BASE® 125 FSA dependant care account help me when I can already get a dependent care credit on my tax return?
Will participating in an FSA reduce my social security benefits when I retire?
What is the "use-it-or-lose-it" rule?
What are the advantages to sponsoring and implementing a BASE® 125 Flexible Spending Account (FSA)?
There are several advantages that employers are able to capitalize on when offering the BASE® 125 FSA:
- Reduced FICA taxes (Social Security and Medicare)
- Increased efficiency of payroll dollars (employees receive more take-home pay without the employer increasing gross wages)
- Simplest and most economical form of flexible benefits that an employer may offer
- Improved employee morale and increased employee satisfaction resulting in less turnover
In addition to the advantages that the employer sees, there are also several key advantages that the employees see as well.
- Reduced FICA taxes (Social Security and Medicare)
- Reduced federal withholding tax
- Reduced state withholding tax (where applicable)
- Enhanced benefits
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What's the difference between a 125 FSA and the Premium Only Plan (POP)?
There are several key distinctions that set apart the 125 FSA from the POP. For a complete breakdown of these, please visit the 125 FSA & POP page.
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Who can sponsor a 125 FSA?
Any employer with 4-99 employees can sponsor a BASE® 125 FSA for their employees. Eligible employers include c corporations, subchapter s corporations, partnerships, non-profit organizations, government entities, limited liability companies (LLC), limited partnerships (LLP), and sole proprietorships. Businesses that are under a controlled group may also sponsor a single plan for all their employees.
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When can I implement a new 125 FSA?
Employers may choose to sponsor a BASE® 125 FSA at any time during the year. The savings that both employers and employees enjoy begin immediately after enrolling in the BASE® 125 FSA. You can choose to run your BASE® 125 FSA on a calendar year or align it with your benefit plan year.
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What is the "use-it-or-lose-it" rule?
The "use-it-or-lose-it" rule is derived from Section 125 of the Internal Revenue Code (IRC). The Internal Revenue Service (IRS) requires that any unused contributions remaining in the 125 FSA participant's account at the end of the plan year will be forfeited. Notice 2005-42 recently amended this by allowing participants to incur expenses during the grace period after the plan (up to 2 1/2 months). These expenses can be submitted to the prior plan year to help use up unused funds and allow the remaining claims to be submitted to the following plan year. This means a participant may now have up to 14 months and 15 days to utilize their BASE® 125 FSA funds instead of the previous 12-month period. There have also been updates to the handling of the dependent care expenses outlined in Notice 2005-61.
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What is the BASE® 125 FSA?
The BASE® 125 FSA is an employer-provided benefit that allows you to set aside a certain amount of pre-taxed income into an account. During the plan year, you can be directly reimbursed from this account for qualified health care and dependent care expenses.
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How do I benefit by participating in such a plan?
By participating in the BASE® 125 FSA, your tax savings usually results in increased take-home pay. Because your 125 FSA account is funded with pre-tax dollars, this reduces the amount of taxable income on your check. The medical reimbursement account also establishes a cash-flow account by giving you the opportunity to submit claims for the entire election amount at anytime during the plan year. Thus, you can be reimbursed for the entire contribution amount long before you have actually funded this amount in your account with your payroll deduction.
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Can I make changes to the plan after the year starts?
You can only make changes to your plan if you have a change in status. Changes in status events as specified by the IRS are as follows:
- Change of employee's legal marital status
- Change in the number of dependents
- Change in you or your spouse's employment status
- Dependent satisfies (or ceases to satisfy) dependent eligibility requirements
- Changes in residence (must affect eligibility)
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How do I get reimbursed for my expenses?
Once you have enrolled in the program, we will provide you with a claim form and instructions on how to file your claim with BASE®.
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How often will my claims be reimbursed?
Claim reimbursements are specified in your plan document. Usually checks are processed on a weekly basis with a claim turnaround of anywhere from one day to one week (depending on when your claim is received).
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What happens if I leave my place of employment where I am participating in a BASE® 125 FSA?
You will be able to submit claims for reimbursement as long as those claims occurred between the beginning of the plan year (or your participation in the plan) and your departure date from your employer whom offered you the plan. Generally, you have 30 days to submit claims that occurred within the eligible period while you were a participant in the plan.
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What expenses are eligible to be reimbursed under the plan?
For a complete listing of eligible expenses, please see IRS Publication 502.
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What is the maximum amount of money that I can elect for reimbursement?
The maximum amount for health care reimbursement is established by your employer and contained in your plan documentation. Dependent care limits are set at the federal level. A single parent or a married couple filing jointly can elect up to $5,000 per family, while a married person filing separately can elect up to $2,500 (it's $2,500 for that person but still $5,000 for the family).
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How can the BASE® 125 FSA dependant care account help me when I can already get a dependent care credit on my tax return?
If your combined income is over $28,000 annually, you will benefit more from participating in the BASE® 125 FSA over taking the income tax credit on your personal tax return. The amount you elect to place in your dependent care account reduces the dollar-for-dollar amount that you can claim as a credit on your income tax return. Please consult your tax advisor to determine the best course of action in this type of situation.
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Will participating in an FSA reduce my Social Security benefits when I retire?
Your Social Security benefits may be reduced on the portion of your income that has been set aside. However, most tax advisors will tell you that the benefit of saving taxes now is far greater than the potential loss of Social Security benefits when you retire. Please consult your tax advisor to determine the best course of action in this type of situation.
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What is the "use-it-or-lose-it" rule?
The "use-it-or-lose-it" rule is derived from section 125 of the Internal Revenue Code (IRC). The Internal Revenue Service (IRS) requires that any unused contributions remaining in the 125 FSA participant's account at the end of the plan year will be forfeited. Notice 2005-42 recently amended this by allowing participants to incur expenses during the grace period after the plan (up to 2 1/2 months). These expenses can be submitted to the prior plan year to help use up unused funds and allow the remaining claims to be submitted to the following plan year. This means a participant may now have up to 14 months and 15 days to utilize their BASE® 125 FSA funds instead of the previous 12-month period. There have also been updates to the handling of the dependent care expenses outlined in Notice 2005-61.
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