25% Concentration Test & Maximum Pre-Tax contribution

[Guest Joe Vasko]

Q1) Are all Section 125 pre-tax benefits included for the 25% Concentration Test?

Q2) What is the maximum pre-tax benefit that an individual can have for 2004? An employer wants to set the Health FSA limit at $10,000.

Thanks, Joe

[oriecat]

To my knowledge, there are no maximums in the regs regarding health FSA's, so an employer can set the limit wherever they choose. Ours is $3k. $10k is very generous considering the risk to the employer!

[Guest llerner]

That is correct. There is no stated maximum in the regs for health care reimbursement FSA. The employer determines the amount that they can handle.Some have no limit! However that would only work with a group of attorneys or engineers etc. large group highly paid.

The risk is that the employee can have $10,000 worth of services in say the first quarter, then quit. The employer would be on the hook and the employee could still receive reimbursement. This is the IRS idea of balancing the "Use it or Lose it" employee on the hook if service dollars don't match election, while the employer is on the hook for reimbursements if employees leave.

In addtion, if only the key elect 10K and the others don't participate or don't elect near that amount, then these folks will end up having to pay payroll taxes at the end of the year.

[Guest lschaab]

To add to the initial inquiry, the 25% test includes all "eligible" dollars in the test. And depending on how the plan was written (i.e., salary redirection only) then you test only the reductions for all benefits "eligible", including child care which is also only tested again (separately).