Leaderboard

Question 1: Cafeteria plans typically provide for a 90-day run-out period to submit FSA claims incurred prior to termination. Check the cafeteria plan document for the FSA to confirm. Although this is the most common structure, it is not legally required. This is purely a matter of plan design. The cafeteria plan may provide that health FSA coverage (i.e., the ability to incur reimbursable claims) continues through the end of the month in which the employee terminates, similar to many major medical/dental/vision plans. This provision is not common for the health FSA, but it is permitted. In the case where coverage continues through the end of the month, the 90-day run-out period will begin as of the end of the month. Keep in mind that the health FSA is subject to ERISA, so the Outbreak Period extension of up to one-year for a plan's benefit claim filing deadline will also apply to the health FSA run-out period. Some health FSAs have adopted the CAA FSA relief provision permitting a health FSA spend down in the same manner as a dependent care FSA spend down. If the plan has adopted that optional relief feature for mid-year terminations during calendar year 2020 or 2021, terminated employees are able to incur reimbursable health FSA claims through the remainder of the plan year in which they terminate (typically only up to the amount of their pre-termination contributions). Question 2: Employees can contribute up to $2,750 to the health FSA with as many unrelated employers as they are employed by. So employees with two unrelated employers in the same year may contribute the max to both employer’s plans—even though the annual total may exceed $2,750. The health FSA $2,750 salary reduction contribution limit is merely a plan year maximum. It’s not an individual maximum. Employees can therefore make full $2,750 elections to multiple health FSA plans in the same year. (Note that this is different from the dependent care FSA, which imposes an individual calendar year maximum. The dependent care FSA rules limit total calendar year contributions to $10,500 (or $5,250 if married filing separately) in 2021 over all employers combined.) Here's the relevant cite: IRS Notice 2012-40: https://www.irs.gov/irb/2012-26_IRB/ar09.html All employers that are treated as a single employer under § 414(b), (c), or (m), relating to controlled groups and affiliated service groups, are treated as a single employer for purposes of the $2,500 limit. If an employee participates in multiple cafeteria plans offering health FSAs maintained by members of a controlled group or affiliated service group, the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,500 (as indexed for inflation). Section 125(g)(4). However, an employee employed by two or more employers that are not members of the same controlled group may elect up to $2,500 (as indexed for inflation) under each employer’s health FSA. Additional Materials: https://www.theabdteam.com/blog/health-fsa-reimbursements-termination-employment-2/ https://www.theabdteam.com/blog/health-fsa-salary-reduction-contribution-limit-2/ https://www.theabdteam.com/blog/top-10-issues-resolved-in-irs-fsa-relief-guidance/ ABD Office Hours Webinar: Section 125 Cafeteria Plans

I just prepared Form 5330, where the penalty is less than the cost of the stamp. I agree, it is ridiculous. How must will it cost the IRS employee to process a payment of 19 cents!

There's an extension to that I've used in dealing with clients: "Pigs get fat, hogs get slaughtered, and attorney's eat bacon." Translation: If you want to do something, pay me now (to fully vet the proposal), or pay me much, much more later (when it blows up).

If I mention it, the question back is typically "how much do I pay them?" I explain that I can tell them the impact on plan contributions for various levels of pay but I recommend they consult with their CPA regarding the "reasonableness" of compensation, since they want to deduct it on the business return. I also tell them if the IRS disallows the deduction for the kids' wages it will then disallow their related plan contributions as well, and this can lead to all sorts of unpleasantness. I will usually end this part of the discussion pointing out the 15.3% payroll tax they incur and remind them that "pigs get fat, hogs get slaughtered. Don't be a hog."

Well, as a TPA it's not my place, but whenever we are discussing wages to family members I tell them the pay has to be reasonable for the services rendered. Now, as an employer who did this myself with 4 kids, one year I actually got a letter from the SSA questioning the wages to my youngest daughter based on her age. The kids did come into the office at least a couple of times a month to fold, stuff and mail billing statements and the occasional mass mailing (I'm old - snailmail BITD). I was paying them more than minimum wage, but not excessively so, at least not IMO. IIRC I kept them under the 1040 filing threshold. Absent use of likeness, I'd not be comfortable with $24K for a 6 year old, that's for sure. I generally discourage letting really young kids into the plan, even if there are no NHCEs. One reason is the reasonableness issue, the other is I'm a big fan of having the parents gift the kids enough money every year for a Roth IRA contribution assuming the kids have earned income.

No, you ask your actuary.