Fiscal Year

[Guest MarcieMcA]

Does anyone know if medical and dependent care flex spending accounts can be administered on a company's fiscal year as opposed to a calendar year? I've never seen it done any other way besides calendar but I thought I'd double check. Thanks!

[papogi]

Yes. Not a problem.

[Guest MarcieMcA]

So if a company's fiscal year begins August 1st then the plan's year would be Aug 1st to July 31st? Are there any drawbacks to administering the plan this way? Thanks for the information...this is new to me.

[papogi]

There are no real drawbacks. A couple minor considerations: Remember that the IRS expects all W-2 reporting to be on a calendar year basis. This includes DCFSA's, for instance. The amounts that employees see on the forms may look odd to them, especially if they have a plan year with an account, then a year without an account, or vise versa. They know they elected $5000, but the W-2 for one year says $2000, and the next year says $3000. This causes no problem in the end. When they fill out their taxes (Form 2441 for both years), this all comes out right. It just takes longer, since the employee has to wait until the next tax year to finish the reporting. I have many clients who operate 7/1-6/30, and have even had one who operates 12/31-12/30.

[Guest MarcieMcA]

Thank you very much...this information is helpful.

[Kirk Maldonado]

One reason why health FSAs are typically run on a calendar year basis is because oftent the deductible under the health plan is also on a calendar year. Thus, using a fiscal year for the health FSA causes some complications.

[mroberts]

And running it on your fiscal year rather than calendar year could also pose complications if your medical renewal is on a 1/1 cycle. What if you have to increase copays or deductibles next year to help offset the medical renewal increase you're going to get next year? You might get a lot of moaning and whining from people who are having surgery or other expensive procedures that they would have liked to increase their spending account dollars for to account for the increased expenditures. If at all possible, have your section 125 plan run on the same cycle as your medical plan.

[papogi]

What complications would that cause? I know that if the deductible operates on a calendar year basis, but FSA's go from 8/1-7/31, then there would be lots more FSA reimbursements related to deductibles from 1/1 to 7/31 than from 8/1 to 12/31, since that's the period of time when charges are skewed to the employee. The total for the year is the same, however, so it should not matter. If a plan has a $500 deductible, and the employee knows he/she uses it completely each year, then the employee can add that $500 into the calculation when determining an annual election regardless of the plan year dates in the FSA. Are you thinking of something I'm not? Just wondering.

[Guest MarcieMcA]

Actually, the reason this issue came to light is I have a company who's medical plan renews on Aug 1st of each year and they would prefer that their flex spending plan also follow their medical plan renewal. Their concern is that if costs go up then all the participants will have to adjust their medical flex spending contributions.

[mroberts]

It's a good point and do your best to make sure you can coordinate it so that both are on a 8/1 cycle.

[Guest aearle]

Reading this triggers a question that I have: If FSAs are on a different cycle than the major medical or other benefits, can they live under the same Sec 125 or do you have to have a different Sec 125 for each "plan year"? If the Sec 125 plan year is the calendar year and that is how the FSAs cycle, but the medical is 4/1-3/31, when is the "open enrollment"? For instance, if people are allowed to make changes to the medical plan in March for a 4/1 effective, would this violate the Sec 125 plan with regard to when participants can change pre-tax elections?