Flexible spending plans for health care and dependent care are often some of the best benefits for employees. But at the time of the coronavirus, the plans have become a huge responsibility for workers who set aside thousands of dollars to pay for medical and child care services they cannot access.
The plans allow employees to set aside up to $ 2,750 to cover out-of-pocket health expenses and up to $ 5,000 to cover child and elderly care expenses. Employees do not pay federal income, Social Security or Medicare taxes on money, which can save thousands of dollars depending on their tax category.
Employers benefit, too, because they don’t have to pay the employer’s 7.7 percent portion of Social Security and Medicare payroll taxes on the portion of reserved wages in flexible spending accounts.
But tax-advantaged accounts include a “use it or lose it” feature, meaning employees who don’t use the money spent on medical bills or childcare expenses during the year will lose the funds. So how do you spend money for after school care if your children’s school is closed and so is the after school program?
And what if you can’t spend all of the health care money you set aside because elective surgeries, non-emergency dental procedures, and other types of care were suspended this spring and you are reluctant to reschedule it? The problem is especially annoying for employees whose plan year ends not in December like most, but this spring or summer.
OFFICE SPACE: How to keep workers safe when they return
According to Mercer, more than eight in 10 big employers offer flexible spending plans. Twenty percent of employees participated in health care plans in 2017, contributing an average of $ 1,300. According to Mercer, five percent participated in dependent care programs, allocating an average of $ 3,400.
Employees who participate in your company’s dependent care program and who no longer need the money for child care should consider asking their employers to suspend their dependent care contributions, an employment attorney recommended.
Most employee benefit plans allow employees to change their dependent care contributions, including ending paycheck withdrawals, if employee circumstances change, such as when schools close or employees change to Work from home, said labor attorney Jesse Gelsomini, who represents management clients at Haynes and Boone in Houston.
“Under most plans, it will be a state change event allowed,” he said.
Employees have 30 days to request a change, but most employers are flexible about when the clock started, Gelsomini said, since working from home, which started as a temporary measure, has become a long-term solution.
The Internal Revenue Service has also issued a guide allowing companies to amend their plans to allow employees to change their health care and dependent care contributions in the future, including eliminating employee contributions entirely. The change is designed to provide flexibility as employees struggle to cope with the coronavirus, according to the IRS notice.
HOUSTON HOW: How to choose health insurance if you lose your job
But it’s only good if your employer chooses to amend your flexible spending plans. And you should still spend the money already reserved in your account.
Hopefully, schools will reopen in the fall and you can use the money for dependent care that you have already set aside for after-school care. Or daycare, if you return to the office later this year.
To spend money already set aside for healthcare expenses, participants can use the funds for typical out-of-pocket expenses, such as prescriptions, dental work, and eyeglasses. But IRS rules also allow you to spend on things that at first glance may not seem too health related. That includes the cost of transportation, including parking and mileage on the way to the doctor.
The rules have also recently been amended by the Coronavirus Financial Aid, Relief and Security Act to allow participants to use flexible healthcare spending funds to pay for over-the-counter medications, such as cold and cough remedies and over-the-counter products. feminine hygiene. Save your receipts and send them in for reimbursement.
Don’t expect to spend
If you’re still working and haven’t used up all of the health care money you chose to set aside for out-of-year spending, consider spending it quickly. The full money pot is available for eligible health care expenses on the first day of the plan year, and most plans do not require outgoing employees to pay funds that have not yet been collected.
But the availability of those committed but uncollected funds stops abruptly if employees leave mid-year, whether they quit or were laid off. And getting the money you have already contributed can be difficult.
TEXAS INC.: Get the best of business news delivered directly to your inbox
Ask your employer if you qualify for a COBRA plan for your flexible spending account. And then consider spending money as quickly as possible to avoid administrative fees and continue to pay contributions, but after taxes.
It’s time for new glasses for everyone in the family.