Health Care Reimbursement portion - Spouse has plan and employee wants to participate in spouse and new ER health care cafeteria plan.

[Guest llerner]

Health Care reimbursement portion of cafeteria plan:

A client is asking about the health care portion of the cafeteria plan :

If spouse has a cafeteria plan and they contribute, if their employer sets up a cafeteria plan, can they also contribute since there is no federally set maximum and the is up to discretion of employer subject to discrimination testing of course. It makes sense to say yes due to the actual regs stating that dependent care plan where annual mandated maximums are set, no double dipping is allowed.

Does anyone know of any reg that specifically addresses this issue? Could you confirm my intuitive response? Thank you. By the way, i have seen employers set no maximum (engineering firm) and another set a 10,000 so this does not appear to violate any policy of dollar maximum so logically it would seem that since there is no prohibition on dollar amount requirement, it is permitted.

I don't know why this has not come up with my groups more often. This would be a very attractive feature with the over the counter medicine component available as well for tax savings available only through cafeteria and not through tax deduction (that they could be dependents on each others account and have access to two different maximums) Any thoughts? Thanks for your input.

[sloble@crowleyfleck.com]

A client is asking about the health care portion of the cafeteria plan :

If spouse has a cafeteria plan and they contribute, if their employer sets up a cafeteria plan, can they also contribute

Could you please clarify your post... who is "their employer" and how many cafeteria plans?

[papogi]

You seem to be asking if it is possible to have one spouse at their employer (employer A) set up a HC FSA at that company’s maximum, then have the other spouse set up a HC FSA at that their employer (employer B) at that company’s maximum. If that is the case, this can be done. There simply is no mention of maximums for HC FSA’s in the 125 regs. As long as there is no double-dipping, this is fine. In other words, if the husband submits a claim for Aspirin bought on 8/30/04 to his FSA, the wife can’t submit that same bill to her FSA.

Incidentally, even though the IRS has set no limits for HC FSA’s, there are still controls which employers should exercise when setting up FSA's. For instance, the entire balance in a HC FSA is available at all times to employees. If an employer has a $10,000 limit, an employee could incur a huge charge in January, submit the full bill to his/her FSA, get the $10,000, then quit, leaving the employer in the hole. Setting a lower limit, such as $1K to $3K, limits this exposure that the employer might otherwise have. Secondly, if an employer has a high limit, such as $10,000, it is likely that only the highly compensated employees could put that much money in the FSA. When the employer runs the 25% Concentration test as part of non-discrimination testing, they may find that more than 25% of non-taxable benefits are being given to “key” employees, thus failing the test. Keeping the limit a little lower helps to prevent this.