SLuskin

Yes, that money would appear on the W2 and be fully taxable. We also have some plan designs where the employee who declines health insurance can elect to receive either taxable cash, or another pretax benefit offered in the cafeteria plan. for example, $100/month into the medical fsa or into the dependent daycare accoutn.

This is a very common thing to do inside a Section 125 Plan. The employee elects between tax free insurance coverage and taxable cash. Elections are irrevocable for the plan year without a status change.

Brenda, what card are you using? How have you resolved the 1099 issues? Have you seen a problem with employees swiping the card and then not sending in the substantiation if the claim isn't for one of the auto-adjudicated items (doctor office copay, prescription copay)? Thanks.

Here we have also seen plans where the employer pays for the employee's health insurance. If the employee has other coverage and does not take the health insurance, the employer pays a certain number of dollars per month to that employee. There do not have to be flex dollars to do this.

The IRS did come out with a Revenue Ruling in the last few weeks about this. Drugs and medicines which are available without a prescription cannot be reimbursed through a medical FSA. What was new about the ruling was over the counter stuff which is not a drug or medicine, as long as it is for a medical use and not a personal use. The example given was nonprescription reading glasses. People buy them for $15 at a drugstore because they are farsighted and can no longer read close or little print. Because this presbyopia is a medical condition and the glasses alleviate it, the IRS has now said that we can reimburse for this. Previously, we were denying those claims because these glasses were nonprescription.

We have always taken "benefit" to mean eligible to elect. If it meant actually participate, very few companies would have an FSA. I have seen employers who interpret benefit as actually participate seed everyone's account with a nominal amount, thus achieving 100% participation for the eligibles.

No, that person is still self-employed and not an employee.

The problem is not the length of the drive to the doctor's office. The problem is that there is no third party substantiation for the expense. What kind of receipt would the person be submitting for that office visit?

Yes, if listed in the plan document.

I agree. I would not allow enrollment in the daycare account. The desired election change has to be consistent with and "on account of" the status change which occurred. I could argue the other way - if the employee had elected dependent daycare initially, and then the spouse changed from full time to part time, I would permit the employee to drop the daycare election if the reduced hours of the spouse meant that the child no longer needed outside daycare.

Thank you!

Does anyone know if workers in a Puerto Rican division of a US based company can participate in a Section 125 Plan? I didn't think they paid FICA or Medicare, so don't know what advantage there would be to the employer. How about federal income tax? Thanks.

You can't elect a higher daycare amount than the "imputed income" of the disabled or student spouse. I was thinking that the amount of imputed income that is permitted now has been increased to go along with the increased limits on the 1040 $3000,$6000. That's actually $250/month for 1 qualifying individual and $500/month for 2 or more. But it looks like there's only 1 in this case.

The only way that I know to do this is to limit the FSA to things not covered at all on the health insurance. For example, the FSA could be for dental expenses only, as there is no dental coverage in the health insurance plan.

Doesn't this negate the "use it or lose it"? I would not allow this option, especially because there is already a remedy - COBRA.

I would not let this employee change his elections without a valid change in status. If you have "rollover" elections, I would go the extra mile and make sure that he follows procedure not to participate for the next plan year.

George, the premium reimbursement accounts that we have are not for premiums which are pretaxed. That clearly is double-dipping, and we all know better than that. I was talking about outside premiums, which the employee pays with after tax dollars. Sheesh!

Supplies are tough. We generally only reimburse for diabetic and colostomy supplies, and consider the rest the same as aspirin and nasal spray. We have allowed some items from medical supply companies on a selected basis. On the other hand, we have reimbursed for breast reduction surgery after receiving medical documentation of neck and back pain. I would not reimburse this one.

Ric, do you have anything I can refer to about this? We have allowed pretaxing on private individual health premiums for a long time. We set up a separate reimbursement account - separate from the medical FSA. However, I also thought that the policy had to be owned by the employee or else it was ineligible participation. We had also allowed Medicare part B for a number of years, but then read a HCFA (can't remember their new name) ruling which said that an employer couldn't do anything to entice an employee to choose Medicare over the employer-sponsored plan, including the pretaxing of the Medicare Part B premiums in a Cafeteria Plan. If this is not the case, I have some clients who will be very happy. Thanks for your assistance.

You have to have a separate reimbursement account for private premiums. There are some HIPAA issues with a health insurance policy, but not on policies like dental, vision, etc. You are correct that these premiums cannot be reimbursed through the medical expense FSA.

If there is a family history of a specific disease for which this could be a directly linked benefit, it is reimbursable. If it is being done "just in case", then it is not.

Harry Beker of the IRS has gone on record any number of times saying that all claims must be adjudicated. He has stated that there is no minimum dollar amount. In fact, we have in our EBIA Manual, the list that the IRS auditors are supposed to use when auditing a Cafeteria Plan. Proper claims substantiation procedures is on the list. I know that we look at every claim for all of the elements before approving it.

Every state has different regs on this. Florida has no legal separation, you are either married or divorced. Maryland requires 1 year of legal separation before a divorce will be granted.

Doesn't the coverage have to be substantially similary coverage? I am not sure why dropping catastropic coverage would permit enrollment in the dental or vision plans, and seems "iffy" for the group medical plan as well. Especially if this catastrophic coverage is one of the voluntary worksite payroll deduct products.

I do not believe that you can include cancer policies that have the return of premium feature in a Cafeteria Plan. Certainly the premiums cannot be pretaxed.