Funding an employer contribution (seed) - payroll

[bcspace]

An employer is giving everyone $600 up front for their medical fsa. How does this look/work on the payroll and should it go into a separate account?

Thanks

[LRDG]

It's not necessary for the employer contribution to be on the P/R system because there are no tax or net or gross pay implications.

However, there could be administrative preference. If the employer contribution/credit is tied to eligibility triggered by hours worked, for instance, and hours worked are accounted for on p/r system versus the Sec. 125 system, but other wise it's not necessary for it to be on P/R system.

I personaly would keep employer contributions in general asset account and would not set up a seperate bank account to avoid triggering trust account issues.

[GBurns]

A bad idea, aside from the fact that there are some taxing entities under whom it might be taxable. NJ as a state comes to mind and I recall that many Ohio munis also tax it. In such cases it would have to be on the payroll.

FSA money is for the reimbursement of incurred medical expenses. The IRS has very often stated that an employer cannot advance or loan money in advance of or in anticipation of the incurring of the medical expense. RevRuling 2002-80 for example and I think there is reference and example in the Proposed Treas Regs.

[LRDG]

Of states that imposed a payroll tax on income, only NJ voted not to follow IRS recognized Salary Reduction Agreements under Sec. 125.

Employer MFSA contributions do not involve SRA.

Employer contributions were not the subject of that particular legislation, but based on analysis at the time, NJ continued to follow IRS tax policy allowing exemptions for employer benefit contributions.

The basis to suggest excluding employer MFSA contribution on payroll is that I would not include superfluous data on payroll, which would be the case if it's not subject to payroll tax. It's presence serves no purpose. which at this time is the case for employer MFSA contributions.