papogi

When an employee elects to contribute money to an FSA, they are giving their money back to their employer. It becomes employer money, and that's the whole reason that FSAs enjoy favorable tax treatment under Sections 106 and ultimately, 105. Based on this, it is my opinion that monies from the employer would be treated the same as monies that the employee gives back to the employer, and the uniform coverage rule should apply.

Oriecat, because they could COBRA the first employer's FSA for one or two months with post tax dollars and clean it out under the uniform coverage rule. Then have an FSA with the new employer with a smaller election thereby getting more out of his/her FSA's in the year than he/she contributed. As for the answer to the original poster, not sure. If the FSA is seen as employer-provided group health coverage (which it becomes under 125 and 106), then I don't see why not. Honestly, not sure though...

In my experience, that's not uncommon. Based on lag reports, at least 3 months of full admin fees is common, with any additional services (if agreed to) paid on a per-EOB basis. Other arrangements are certainly possible.

With valid medical expenses incurred during the time that the FSA was in place (prior to the coverage term date, extended by applicable COBRA payments), yes.

Life insurance proceeds, even if premiums are initially paid for by the employee on a pre-tax basis, are tax-free.

Although I haven't tried any of these, here are some: http://calculators.aol.com/tools/aol/rothira02/tool.fcs https://personal.vanguard.com/us/RothConversion http://moneycentral.msn.com/investor/calcs/n_roth/main.asp

No exceptions that I am aware of. This would be a good opportunity to elect flex COBRA and to continue the account at least up to the point where your bigger bills later in the year will be reimbursable, then you can drop the account. If your bills are spread out evenly over the whole year, it would still be to your benefit to continue the account up to the end of the plan year. Even if you lose the pre-tax benefit and have to pay the usual 2% COBRA admin fee, your losses will likely be far less than the $500 you stand to lose right now with nothing currently reimbursable.

The concept of plan-mandated participation after termination has been debated on this forum (and elsewhere, obviously) from time-to-time over the years. The IRS has not given any specific and binding guidance on the issue that I have seen. It is an area that is open to interpretation, but, for what it is worth, I would contend that the prevailing or more common interpretation is that plan-mandated participation after termination is not allowed (or at least not written into plans, perhaps due to the confusion that surrounds the issue). While that doesn’t automatically make this interpretation correct, it does illustrate industry trends, or more “normal” benefits practices. Plan-mandated participation after termination does put the terminated employee in the same position as a regular, employed individual. In that sense, it doesn’t remove any employer risk that would otherwise exist between employees and employers. When you look at the Plan on the whole, however, without plan-mandated participation after termination, the employer has a risk within each participant that that participant might terminate during the year without making any further contributions. That risk is hidden within each participant. The question becomes: Is that a risk that the regs infer that the employer should bear, or is normal to bear? It’s worth pointing out that this is a risk that an employer bears in regular health coverage, as well. The employee terminates, contributions cease, and coverage ceases. "Premiums" paid may or may not be more than the claims paid up to that point. It is not normal to have regular health coverage continue past termination (without COBRA, of course). The HC FSA is the same in that the employee dollars are turned into employer dollars under 125, then the employer uses that to buy health coverage under 106. In this interpretation, the HC FSA should not be treated differently from regular health coverage when it comes to terminations, and the plan should not mandate participation after termination. Either way, this is certainly an area that is open to interpretation, and it would be nice to have guidance from the IRS.

smm, just a thought to add. COBRA regs are often viewed as minimum standards, and an employer can choose to be more generous ("this is the least you must do for your employees," similar to what you wrote in an earlier post). Cafe regs are generally written as maximum standards, meaning these are the guidelines inside which the plan must be written in order for it to enjoy the tax-favored status that section 125 allows. It could easily be argued that a HC FSA spend down without contributions eliminates risk to the employee, negating the risk-shifting requirement necessary in order to label the plan as "insurance" (with the contributions becoming employer dollars under section 106, and the payout for eligible expenses being tax-free under section 105). Sure, some plans do allow this, but I think they are wrong, and would have a tough case in an audit.

I think Chaz is referring to Treas Reg 1-125-4, Supp Info, Explanation of Provisions, #2. It says that the regs do not allow a cafe plan participant to cease participation in the cafe plan if he or she becomes eligible for SCHIP during the year. I've heard of complications about interpreting that reg depending upon which of 3 possible options a state chooses to allocate their SCHIP money, so that reg applies in some cases and doesn't apply in others. I think that is where Chaz is coming from.

Depends on facts and circumstances. If you could share some details, that would help. One example that the IRS has used (informally) is when someone elects a DC account thinking that it is for HC expenses for dependents, and the person doesn't even have any dependents in daycare. An employer would then be allowed to move that money from the DC account to the HC account, for instance.

My understanding is that they really should pay for August and September in full. August is due on 8/1 and September is due on 9/1. By the middle of September, both the Aug and Sept payments would past their due dates and would be considered retroactive payments to get up to date as of the middle of September.

To answer your question, if you’ve contributed your maximum amount for the year, then you can’t contribute any more than that, no matter how good or bad the investment goes. While you asked us to excuse your lack of investment knowledge, I can’t help but add a few comments meant only in a supportive and positive way. It is not accurate to expect any mutual fund with any stock (or most bond, for than matter) exposure to have up and down days but only overall up years. Stocks and bonds have down years, and sometimes more than one in a row. Part of investing is risk tolerance, and if your risk tolerance is very low, then it is what it is. You can invest in things like money markets and CDs and be virtually guaranteed of no down year, but your upside potential will be severely limited, and your protection against the risk of inflation will also be very low. It’s all about the time horizon that you think you will need the money, your risk tolerance, the risk/volatility of the particular mutual fund (what it invests in), etc. Basic investing knowledge can be gotten from magazines such as Kiplinger’s, etc. Don’t get me wrong, I think you probably did the right thing taking your money out. You obviously didn’t know that it could go down that much (and $4,000 to $3,700 is not necessarily a bad investment choice in the recent markets, by the way), your risk tolerance is likely currently very low, and it’s always good to understand the investment vehicle before you invest. In light of that, you probably did OK taking out your money. However, with some education and better expectations, please don’t take this and shy away from future investing.

With your income level, you get no tax credit for contributing to a Roth IRA, so I'm not certain what tax breaks you are getting by contributing to the Roth (funded by post-tax dollars). If you are talking about a traditional IRA, then, yes, you could be getting some deduction for your IRA contribution (depending on other factors like whether you participate in a company 401k, but it appears that you do, so there should be no deductibility based on your income). If that is the case, then you can take traditional IRA money out for a house down payment and not pay the penalty, but you'll still owe income tax if they represent deductible contributions. You'll owe no income taxes for nondeductible contributions. I guess I don't see the advantage here, but maybe I'm missing something.

One place where the IRS has said that kindergarten is generally educational in nature is in IRS Info Letter 2000-0246, issued in September of 2000.

I work at a TPA, and I know our system has no automatic way to track that, either. The analysts have to make notes in the system. We use standardized language in the notes for cases such as this (for such and such dates of service, employee has such and such dollar amount, for next such and such dates, employee has this dollar amount). It ends up being a manual process, but it follows what I believe to be the IRS' intent.

Your thinking is correct. Change is prospective only, so those old charges should not be reimbursed.

Many employers send eligibility to TPA's via electronic means, and if a TPA changes an address based on a participant request, if this is also not changed on the employer's side, the next file load could overwrite the manual change made by the TPA. In a self-funded world with a TPA, it can be argued that the eligibility is owned by the plan sponsor. A policy where all changes come from the employer is not a bad one for a TPA to have.

kgr12, nowhere in 125-4 does it state that election changes must occur within 30 days of the event. Back before January 2001, there was no reference to any required number of days in 125-4. In Jan 2001, the IRS said that all 125 plan changes must be on a prospective basis only (not back to the status change date), except for birth, adoption or placement for adoption, which could go back to the event date as long as they were reported within 30 days of the event as outlined in HIPAA 9801(f). Still, the industry standard has always been 30 days following an event, as this was seen as enough days to notify one's employer of a change, but still a short enough time to help ensure that the vague consistency standard was being held to should there be an IRS audit. EBIA has undoubtedly taken that stance for all changes, and, with so many employers relying on their books, decided that this was the most prudent thing to publish. I don't disagree. However, outside of the 30 day time span forced on a 125 plan when HIPAA 9801 is also involved, there is still no specific restriction placed on other status change notifications that would prevent you from using a longer time span. Again, I would not recommend it, however.

Regs issued in March 2000 by the IRS would allow someone to drop a DC account if a child goes from a day care facility to kindergarten. The change would be allowed under either the change in cost or the change in providers.

It is a change in worksite, but it doesn't affect eligibility for the plan, so it doesn't matter. I think the only route you have is via cost change if the person plans on less daycare after the change to telecommuting.

If the change to teleworking means that they are no longer sending the child to daycare, or are using less daycare (resulting in lower costs), then yes, the DC account can be reduced. If they are continuing to send the child to daycare with no changes at all, then I don't see how the regs would allow a reduction, and I don't see why you would want to reduce the account. Again, if they are reducing their DC costs, then a change would be allowed based on the change in cost rules.

1.125-1 A-18 paragraph 2 only uses the words "plan year" and is partially to blame for the confusion that surrounds this issue. I've seen plans that allow spending down after the term date and others that don't. Because there is some confusion on this, and the uniform reimbursement rule does not apply to DCAP, many employers are willing to take the relaxed interpretation on this point. In principle, I like the stronger approach where the DCAP is treated the same as a HCFSA. In practice, however, it will cost the employer nothing to allow spending down, and the IRS has offered no specific guidance on the issue that I am aware of.

Form 8889 line 2 is basically for any contributions that you made to your HSA that were not pre-tax. You need to see if your $1950 was pre-tax of not (it is likely pre-tax). Basically, did you already pay income tax on the $1950? Was it deducted from your pay before the federal income taxes were calculated and withheld by your employer? If the $1950 was pre-tax, then Form 8889 line 2 should be zero. Your $1950 becomes and employer contribution when it is pre-tax, so line 9 would be $3150 (1950+1200). If the $1950 was already taxed, then line 2 should have $1950, and line 9 should have $1200.

I wouldn't. Only in the case of orthodontics (due to the high dollar nature and lengthy treatment plans) has the IRS made any "exceptions" to the fundamental rule that services must actually be rendered before reimbursement can occur. In those cases, pre-payment of ortho expenses can be reimbursed if a Plan chooses to allow it. I think your situation is one where the claim should be denied.