Business Benefits Group’s (BBG) Benefits Consultants can help businesses to establish flexible spending accounts (FSAs) for employees. These accounts simplify the process of reimbursement, and deposits made into these accounts are made with pre-tax dollars— resulting in lower taxable income and lower taxes. Companies who utilize BBG’s benefits consulting services will reduce administrative workload and allow management to concentrate on growing and developing the business.
Flexible Spending Accounts: An Overview
Flexible spending accounts (FSAs) are a type of benefit that is designed to save employees money via pre-tax savings on healthcare expenses. Offering flexible spending accounts may help businesses attract top candidates and increase retention and satisfaction among existing employees. Employers may also gain some tax advantages from these accounts.
How Flexible Spending Accounts Work
Once established by an employer, flexible spending accounts allow employees to put money directly from their salaries into a special FSA account. FSA contributions — which are limited to $2,550 per year per employer — is not subject to any federal, state taxes or withholdings. This leads to a reduction in employees’ overall tax burdens and an increase in their spendable income.
Employees use FSA accounts to fund healthcare expenses that are not approved by their healthcare plans. This includes deductibles, copayments, medications, and medical equipment, but not insurance premiums. However, there is a potential drawback for employees because they must choose an amount to put into the account at the start of the enrollment period and they may not correctly estimate their expenses. In this situation, they risk losing the remaining balance in the account at the end of the calendar year.
Benefits for Employees and Employers
Employees see an immediate benefit in FSAs through a lower tax burden. For example, if an employee makes $50,000 a year, and elects to have $2,550 put into a FSA, his or her taxable income is now $47,450. This is true for both state and federal taxes, as well as withholdings. For employers, there are also tax advantages through lowered payroll and Federal Insurance Contributions Act (FICA) taxes. Employers can also write off the cost of administering these plans, and can offer them as part of a comprehensive employee benefits package.
However, there are other considerations for employers to keep in mind when setting up FSAs. When an employee elects an amount for their FSA, the employer is responsible for reimbursing the full amount, regardless of whether or not the employee has put it into the account. For example, assume that an employee elects to put $50 per week into a FSA, for a total yearly contribution of $2,600, and has a procedure at the beginning of the year that results in $2,000 in out of pocket expenses. The employer must cover the full $2,000, even if there is only $200 in the account at the time. If the employee resigns or is terminated before the full amount is in the account, the employer will not be reimbursed for that additional money. This factor should be carefully considered when deciding whether or not to offer these accounts, and in setting the maximum contribution amount.
Setting Up Flexible Spending Accounts
When it comes to establishing flexible spending accounts, many employers choose to hire a benefits consulting firm given the large amount of paperwork that these accounts require. In addition, ever-changing legislation and rules regarding FSAs make setting up and administering the plans a challenge. Employers may also opt to utilize a third party administrator to protect employee’s confidentiality, so that they are not directly handling sensitive medical information. This could impact a company’s exposure to lawsuits if human resources decisions are made by someone with knowledge of employees’ health issues.
Once a FSA plan has been established for a company, they must set up a process to track contributions, verify eligible expenses, and reimburse employees. This requires keeping accurate records for each employee regarding contributions, claim submissions, reimbursements and claim denials. An employer will also have to provide notice to employees regarding the plan, including eligibility, enrollment details, and the reimbursement process. Finally, the IRS requires certain documentation from each company regarding their FSAs.
Advantages of Working With Our Benefits Consultants
Given the amount of paperwork and attention to detail required by FSAs, it makes sense for most employers to hire a benefits consulting firm to administer their plans. BBG’s Benefits Consultants can ensure that the plan complies with all applicable laws, track contributions and reimbursements, and protect employee’s confidential information. The cost of administering the program is typically deductible as a business expense. Ultimately, working with BBG to administer FSA will save businesses valuable time and decrease costs.
Contact Business Benefits Group Today for More Information!
Businesses who would like to learn more about how BBG can assist with selection, implementation, and administration of FSA accounts can contact us by calling directly, or by sending us a message online today.