BASE^® Blog

With the price of health care on the rise, many are taking advantage of the pre-tax paycheck deductions that come with enrolling in the Flexible Spending Account (FSA).  Employees will save 25-40% in taxes for every dollar they elect, helping stretch their dollars when it comes to paying for their health care costs. 

Many participants want to know…“What is the right amount to put in my FSA?”

The Flexible Spending Account (FSA) is an employer-sponsored health benefit that allows employees to set aside money, on a pre-tax basis to pay for qualified health care expenses. 

The BASE® FSA can help employees pay for their out-of-pocket health care spending not covered under an insurance plan and cutting payroll taxes by decreasing the total taxable payroll.  Employees now have extra funds to pay for the planned, and unplanned, health care expenses throughout the plan year. 

Regardless of how the FSA is designed by the employer – carryover, grace period, or “use it or lose it” – employees must carefully decide the right amount to contribute to their FSA each year.

As we know, it is impossible to know what the year will be like for anyone’s health, but instead encourage participants to aim for a reasonable estimate.  One place to start is to review last year’s health care, dental, and vision expenses and what is expected to spend for this year.  As a reminder, don’t forget to include copays, urgent care or ER visits, prescriptions, and any planned surgeries or procedures.  But also prepare for:

• Dental costs – will anyone need any orthodontic work this year?
• Vision expenses – will anyone need new glasses or contacts for the year?
• Physical therapy or ER visits – have kids signed up for all the sports activities this year that might result in a few injuries?

It is easy to track your yearly out-of-pocket expenses, but the hard part is estimating emergencies and unexpected costs.  But know that if year-end is coming up fast and you have a lot of FSA funds left, check out the Optum Store to buy your FSA-eligible essentials! 

For more information on the BASE® Flexible Spending Account (FSA), contact BASE® at 888.386.9680 or visit www.BASEonline.com.

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In the most recent memorandum released by the IRS, it addresses the substantiation requirements for health and dependent care expenses and the consequences of various substantiation shortcuts.    

If a 125 Cafeteria Plan qualified expense is not substantiated by a third-party administrator, those claims will result in gross income to employees, failing the plan to operate in accordance with the rules under the Code. 

The Flexible Spending Account (FSA) and Dependent Care Assistance Plan (DCAP) are employer-sponsored health benefits that allow employees to set aside money, on a pre-tax basis to pay for qualified health care and dependent care expenses. 

The BASE® FSA can help employees pay for their out-of-pocket health care spending not covered under an insurance plan and cutting payroll taxes by decreasing the total taxable payroll.  Employees now have extra funds to pay for the planned and unplanned health care expenses throughout the plan year. 

The BASE® DCAP can help employees pay for their employer-related dependent care expenses such as taking care of a child under the age of 13, a spouse or dependent incapable of self-care, or care for a disabled spouse or dependent outside of the home. 

These shortcuts that are impermissible are:

• Self-certification
• “sampling” of expenses
• Certification by favored providers
• No substantiation below a certain threshold
• No substantiation of DCAP expenses

This memo confirmed that health care expense reimbursements, regardless of the amount, from a health FSA or a DCAP will be included in an employee’s gross income if the expense has failed to be fully substantiated by a third-party administrator in accordance with the IRS rules.  The amount of the benefit that the employees elected under the cafeteria plan will be included in income as wages and are now subject to FICA and FUTA. 

For more information, contact BASE® at 888.386.9680 or visit www.BASEonline.com.

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