Flexible Benefits Plan

[Belgarath]

I haven't seen a plan document (if there is one) but here is the election form.    Each employee that is given this form is allotted (x dollars).  This is money the employer gives them.  The employer does not deduct anything from their paychecks.  The bookkeeper writes checks to employees directly after they submit supporting documents stating that they used the money for things such as medical bills and/or dependent care costs. I haven't seen such an arrangement before, as I don't deal with welfare benefit plans. Is this common? Given that they have a choice between the other benefits and cash to be deposited to an IRA, are the health/welfare benefits still non-taxable?

If this is actually under a cafeteria plan, is there a problem with the IRA arrangement - since the money isn't actually put into the "plan" then this seems ok? I'm very confused by this arrangement...

 

Flex Benefits Enrollment Options

(Year)

 

If you would like to participate in the Flex Benefits Program, please read the following and fill in the information on the included form.

 

For the contract year 2018-2019, (employer) is offering the following Flex Benefits to each staff member who is currently working 30 hours or more:

 

For the (x) contract year, the (employer) Flex Benefits amount is (x).  This is to be prorated from date of hire.  These funds may be used in the following ways:

 

1. All or some of the funds can be allocated to purchase health insurance provided by the (employer).

2. All or some of the funds can be allocated towards medical expenses not covered by other health insurance plans.

   Please note: Medical benefits may be paid to a designated beneficiary (other than the employee’s spouse or dependents) but this will then be considered taxable income and must be reported.

3. All or some of the funds can be allocated for Dependent Care.

4. All or some of the funds can be allocated for an IRA set up through the (employer).

   Please note: You may allocate funds not used for the above to be put into an IRA at the end of the year. However, this will be considered taxable income and must be reported.

    

   In addition, you may contribute your own PRE-TAX dollars into option number 5.

    

   By signing this, you acknowledge that you understand that you are committed to the enrollment choices on this form for the entire contract year of (X).

     

 

 

Flex Benefits for Year (X)

 

Name:___________________________ Social Security #:___________________

 

                                                Flex Benefit Portion       Employee Portion

 

 

1. Health Insurance          $_________________

    

2. Medical Expenses                    $_________________ 

    

3. Dependent Care                       $_________________

    

4. IRA                                         $_________________  $_____________

 

1. IRA: I wish to allocate any unused portion of #1, 2 or 3 to an IRA, understanding that this will become taxable income and must be reported.

 

_________Yes              __________No

 

 

 

 

AUTHORIZATION: I certify the above information to be true to the best of my knowledge and that the children for whom I will be claiming dependent or child care expenses either reside with me in a parent-child relationship or are legally dependent on me for their support. I further understand that the Flex Benefit amount will be in effect for the entire plan year and cannot be revoked except as permitted by federal law.

 

Signature:___________________________                Date:________________

 

[leevena]

  Appears legit and ok, I have seen many of these over the years.  Employer has simply allocated a fixed amount of credits/dollars that an employee can use to purchase the benefits they want for themselves.

[Belgarath]

Thanks - and all of these benefits would be non-taxable, other than the money used for the IRA?

[leevena]

3 hours ago, Belgarath said:

Thanks - and all of these benefits would be non-taxable, other than the money used for the IRA?

99% confident that IRA is non-taxable, why do you believe it is taxable?  Am I missing something?  Maybe someone else will comment on it, you have me second guessing myself.

[Belgarath]

Maybe I put it badly. What I meant is that the money that goes to the IRA is reported as taxable compensation, and then the individual claims a deductible (or possibly non-deductible, depending upon income/filing status) contribution to the IRA on their 1040.

Would the other welfare benefits be non-taxable?

[A Shot in the Dark]

B:

My guess is the employer is offering the other benefits through a Section 125 Plan that offers FSA accounts.  If that is case then said deferrals would be on a pre tax basis.

[leevena]

7 hours ago, Belgarath said:

Maybe I put it badly. What I meant is that the money that goes to the IRA is reported as taxable compensation, and then the individual claims a deductible (or possibly non-deductible, depending upon income/filing status) contribution to the IRA on their 1040.

Would the other welfare benefits be non-taxable?

IRA contribution is reported as pre-taxable.

[Belgarath]

Leevena - thanks, and I'm not meaning to be difficult, but I'm confused as to how an individual IRA contribution made from the unused pool of money the employer makes available to the participant can possibly be reported by the employer as pre-tax? The employer has no idea as to what the individual's filing status is, and whether they are eligible for a deductible IRA or not. Why wouldn't the employer have to simply report it on the W-2 as compensation? This isn't an employer contribution to an employer-sponsored qualified plan. Can you walk me through the mechanics of why you believe it is reported as pre-tax?

[leevena]

I know you are not trying to be difficult.  W-2 shows both figures.  About 25 years ago my wife and I had about $20k reduction in income because of the 125 plan.  We were applying for a mortgage and the guy asked me about it, told him it was my cafeteria plan.  He actually thought I meant I spent that amount in a company cafeteria.  Google a w-2 and you can see the info.

[Belgarath]

Thanks, but I still don't get it. This is not an employee deferral under a Section 125 plan. I don't see any reporting code on the W-2 that applies. And the employee election form in the original post even states that the IRA amount will be considered taxable income. Can you point me to anything official on the W-2 that indicates otherwise? Anyway, I'm not going to pursue this post further regardless of your answer, 'cause we don't have anything to do with a plan like this anyway - all this was merely for my information. And I thank you for taking the time to help educate me!

All or some of the funds can be allocated for an IRA set up through the (employer).

Please note: You may allocate funds not used for the above to be put into an IRA at the end of the year. However, this will be considered taxable income and must be reported.

[leevena]

Ok, believe I understand your question, if not, my fault for being thick.

Employer gives me $100 per month credit for benefits.  I select select medical, life, dental and retirement, but the cost is $175 per month.  I have to pay $75 per month, which I run thru the 125 plan as pre-tax and that amount ($75x12) is reported on my w-2 as pre-tax.  

Up to you, am I thick?  Lol

[Belgarath]

A. No, you aren't thick, obviously!

B. No, this isn't my question, I may have been presenting it very poorly, but please don't pursue further - this has gone as far as I need to go, and I don't want you to waste your time!

Thanks.

[leevena]

Ok, have a good day.