Employer Paid Medical FSA

[Guest S WINK]

Can an Employer fully, or partially, fund a Medical FSA? I am working with an employer who wants to provide a $1500 FSA for the employees who do not participate in the group medical insurance plan. This will not be a salary reduction arrangement since it is employer paid.

What if the employer wants to also allow employees to contribute through salary reduction? Could this money be put into the same account. employer/employee?

[GBurns]

Yes, the employer can contribute to an FSA and Yes the employee may also contribute through salary reduction and both can be to the same account.

However, why would the employer want to contribute as much as $1,500 . Why would the employee need to contribute if there is already so much money in the FSA?

What is the real purpose of such a plan design?

[Guest S WINK]

Thanks for your response. What was throwing me was the fact that there would be no salary reduction and no record through payroll of salary being exempt from taxes. Without a manual entry, there will not be a record of this cafeteria contribution on the W2 form at the end of the year. Does this matter?

To answer your questions-

The employer contributes $1500/year towards health insurance for those interested in participating. The employer feels, in all fairness, they should provide those who do not take the health plan with the same $1500. The employee actually will have two choices. They will be able to choose an alternate plan that provides a variety of benefits, life, hospital, doctor visits, dental, OR a Medical FSA.

At least one of these employees has children in ortho and other medical expenses not covered by insurance. This employee wanted to add an extra $1000 per year to cover his family's expenses.

[SLuskin]

An employer contribution to a medical fsa would not show up anywhere on the W2.

We have a number of employers who "seed" the accounts with contributions.

We also have 1 employer who could not get a group plan that he considered reasonable, and so gives each employee $1200 which must be used in one of the Spending accounts.

[GBurns]

There are still some states eg NJ that do not tax deductibilty of section 125 amounts etc. These have to be reported in Box 13 as information and for use in calculating state taxable income if not already showing in the State section of the W2.