FAQs FSA Employer


What paperwork is involved in formally installing a Section 125 Flex Plan?

Do we need to file a Form 5500 for a Flexible Spending Account?

Must the employer report FSA contributions on the employees’ W-2?

How can we know if our employees are interested in a Flex Plan before we go to any expense?

How does FlexBank pre-determine employee interest?

Where do I deposit the employee payroll deductions that are withheld?

Since employees are saving Social Security taxes by participating in the plan, will Social Security benefit payments to them be reduced at retirement?

Do all employees have to participate?

Can an employee change an election after the plan year has begun?

Can we establish an insurance Premium Only Plan?

What happens if an employee leaves the company?

Must requests for reimbursement be submitted by the last day of the plan year?

What happens to amounts left over in an employee’s account if they have not been used during the plan year?

How are requests for reimbursement made?

Are all taxes avoided on earnings deposited to a Flexible Spending Account?

Must an employee’s full annual election be available for reimbursement at any time during the year or are reimbursements only made as monies are withheld?

(Q) What paperwork is involved in formally installing a Section 125 Flex Plan?  Top

(A) In addition to each employee completing an election enrollment form, the IRS requires your Company to have a Plan in writing and a Summary Plan Description. FlexBank will provide you with all the required materials you need to get started.

(Q) Do we need to file a Form 5500 for a Flexible Spending Account?  Top

(A) Generally no, unless you have 100 or more participants in the health care account at the beginning of the plan year. If you are required to file a Form 5500, FlexBank offers this service as well.

(Q) Must the employer report FSA contributions on the employees’ W-2? Top

(A) Starting in tax year 2012, the Affordable Care Act is requiring employers that file 250 or more Forms W-2 for the preceding calendar year to report the aggregate reportable cost of applicable employer-sponsored health insurance coverage provided on each employee’s annual Form W-2, in box 12, using code DD. Aggregate reportable cost does not include amounts contributed to a Health Savings Account (HSA), the amount of any salary reduction election to a health Flexible Spending Account (FSA), or the cost of coverage under a Health Reimbursement Arrangement (HRA).  This reporting will be for informational purposes only and will not affect tax liability. Please note, there is already a separate W-2 reporting requirement for certain health savings account contributions.

The guidance currently gives transition relief for employers that file less than 250 Forms W-2.

Specifically noted in the legislation is the requirement that employer contributions to a health FSA (i.e. matching contributions and/or where the employer seeds the health FSA with funds) must also be reported in certain situations.  The amount of a health FSA for a cafeteria plan year equals the amount of salary reduction elected by the employee for the plan year, plus the amount of any optional employer flex credits expressed as a fixed amount, or as a formula such as matching salary reduction, that the employee elects to apply to the health FSA.  In determining the aggregate reportable cost, the amount of the health FSA is reduced (but not below zero) by the employee’s salary reduction election. 

If the amount of salary reduction (for all qualified benefits) elected by an employee equals or exceeds the amount of the health FSA for the plan year, the employer does not include the amount of the health FSA for that employee in the aggregate reportable cost.  However, if the amount of the health FSA for the plan year exceeds the salary reduction elected by the employee for the plan year, then the amount of that employee’s health FSA minus the employee’s salary reduction election for the health FSA must be included in the aggregate reportable cost and reported under 6051 (a) (14).

The following are a few examples illustrating the reporting requirement.

Example Total employee salary reduction contributions  (including health FSA) Employee salary reduction contributions to health FSA Employer FSA contribution/flex credits

(could be used for any qualified benefit)

Amount reported for health FSA

on employee W-2

1 $2,000 $1,500 $0 $0
Rationale: There are no employer flex credits applied to the health FSA, so no amount is reported for the health FSA.
2 $2,000 $1,500 $1,000 $0
Rationale: The amount of employee’s salary reduction election ($2,000) for the plan year equals or exceeds the amount of the health FSA ($1,500) for the plan year, so no amount is reported for the health FSA. In this example, the $1,000 flex credit was not applied to the FSA, it was used for another qualified benefit.
3 $700 $700 $700 (applied to the FSA using a matching $1 for $1 approach) $700
Rationale: The total amount of employee’s health FSA ($1,400) for the plan year exceeds the salary reduction election ($700) for the plan year. The employer must include $700 for the health FSA ($1,400 total health FSA amount minus $700 salary reduction) in the aggregate reportable cost on the W-2.

Comprehensive guidance on the W-2 reporting requirement may be found at:

http://www.irs.gov/pub/irs-drop/n-11-28.pdf

(Q) How can we know if our employees are interested in a Flex Plan before we go to any expense?  Top

(A) FlexBank does not normally charge a fee for pre-determining employee interest.

(Q) How does FlexBank pre-determine employee interest?  Top

(A) We utilize our normal employee presentation. The only exception is that we tell employees at the beginning of the meeting that we will proceed only if there are enough employees who are interested after hearing about the program. The Company is not obligated until employee interest and Plan costs are known.

(Q) Where do I deposit the employee payroll deductions that are withheld?  Top

(A) You, the employer, establish a separate checking account for these monies. As the money is withheld each pay period, it is deposited into this reimbursement checking account. The account may be at the bank of your choice and any type of checking account that you desire. Monies deducted for group insurance premiums are not deposited to the reimbursement account. They are paid directly to the insurance company.

(Q) Since employees are saving Social Security taxes by participating in the plan, will Social Security benefit payments to them be reduced at retirement?  Top

(A) Yes, but the impact will be minimal.

(Q) Do all employees have to participate?  Top

(A) An employer may choose to require all employees to participate in the group insurance premium part of a Flex Plan. This may be done as some payroll systems do not have the ability to allow for dual choice. Contributing to the Health Care Reimbursement Account or the Work-Related Dependent Care Reimbursement Account is annually at the option of each employee.

(Q) Can an employee change an election after the plan year has begun?  Top

(A) Yes, but under limited circumstances. Permissible mid-year changes are primarily due to changes in eligibility and must be on account of and consistent with the requested change. Some examples are:

  • marriage or divorce
  • death of a spouse or child
  • birth or adoption of a child
  • a change of employment status

(Q) Can we establish a group insurance Premium Only Plan?  Top

(A) Yes. This is the easiest type of plan to install. Although essentially the same paperwork is required, a POP has less administration to it. But installing just a POP needlessly keeps employees from benefiting from the other two tax advantages permitted by Section 125.

(Q) What happens if an employee leaves the company?  Top

(A) 1. The employer must notify FlexBank promptly so that deposits will no longer be credited to the employee’s account and reimbursement requests will be limited to claims incurred prior to termination. 2. If applicable, it is your responsibility to send a COBRA notice enabling the employee to continue his FSA.

Please note: Health Care (medical, vision, dental) claims incurred prior to termination are reimbursable up to the full annual election, regardless of when the claim is received by our office.

The Uniform Coverage Rule causes a health FSA to operate like insurance, with the employer bearing risk as would an insurance company that provides coverage for a fixed monthly premium. Thus, an employer may experience a loss if a participant terminates employment after incurring YTD expenses exceeding year-to-date deposits.

A requirement that a participant repay any experience losses to the plan upon termination of employment would be a method of eliminating the employer’s risk of loss, and it therefore would be a direct violation of the uniform coverage rule and is not permitted.

(Q) Must requests for reimbursement be submitted by the last day of the plan year?  Top

(A) No. Participants have up to 90 days after the end of the plan year to make requests for reimbursement.

(Q) What happens to amounts left over in an employee’s account if they have not been used during the plan year?  Top

(A) Amounts not used during the plan year cannot be returned to an employee. These forfeitures go to the employer. Most employees individually do not leave much money in their accounts. There will, however, be amounts left which may be used by the employer to offset plan costs.

(Q) How are requests for reimbursement made?  Top

(A) Throughout the year, employees may request reimbursements by completing a claim form and attaching appropriate receipts showing that eligible expenses have been incurred. These can be mailed, faxed, scanned/emailed to Claims@FlexBank.net or uploaded securely to the FlexBank mobile site. FlexBank reviews and pays claims daily. The employee may be reimbursed via check or direct deposit. Debit card reimbursement is also available if offered by the employer.  Employees can also submit claims, check their account balance and reimbursement history via the FlexBank Mobile Site. To access the mobile site, go to flexbank.net/m on a mobile device with internet access, log in with the same participant username/password that would be used on the main FlexBank.net website.  Works on all operating systems such as Blackberry, Apple, Microsoft, etc.  NOTE:  When trying to load site, do not use the search field. You must enter flexbank.net/m in the address bar.

(Q) Are all taxes avoided on earnings deposited to a Flexible Spending Account?  Top

(A) Employers do NOT match Social Security, Medicare or pay Workers Compensation premiums (in Ohio) on contributions their employees make to the Plan. Tax savings to the employer will average 8% of contributions made. Employees do not pay Social Security, Medicare, Federal, State and Local (in Ohio) taxes.

(Q) Must an employee’s full annual election be available for reimbursement at any time during the year or are reimbursements only made as monies are withheld?  Top

(A) IRS rules for a Health Care Reimbursement Account require that the employer make the full annual election available for reimbursement throughout the year regardless of how much an employee has contributed. This rule has caused some concern by employers offering Flex plans. The objection to this rule, however, has turned out to be more emotional than practical. Although collectively employees may contribute a considerable sum into their Health Care Accounts, most Health Care Accounts are for fairly small amounts. An employer’s exposure to loss is therefore relatively small. In addition, negative balances for terminating employees are offset by the payroll tax savings from the entire plan and any amounts participants forfeit at the end of the plan year. This rule is not an issue in Work-Related Dependent Care Accounts as reimbursements are only made as contributions are made.