Flexible Spending Account

December 1, 1997

Judith Zwolak

Will Junior need braces next year? Is it time for your worrisome wisdom teeth to come out? Will your infant be at a childcare center in 1998 while you're at work? Tulane's Flexible Spending Account (FSA) can lessen the impact of these expensive--and often unavoidable--drains on your budget.

"This program basically allows Tulane faculty and staff to pay for certain expenses with pre-tax money," says Diane Gregory, benefits manager in personnel services. "These are dependent care expenses and medical care expenses not covered by your health insurance."

Until Dec. 15, personnel services is holding the only open enrollment period for employees to join the FSA plan for expenses incurred in the coming year. This year, approximately 575 Tulane employees participated in the plan.

The plan works like this: An employee estimates his or her expenses for medical care and/or dependent care for 1998 and submits a "compensation reduction agreement" form to the personnel services office. Personnel services then arranges for deductions from each paycheck in the coming year to equal the estimated amount.

When the employee incurs the expense, such as a $500 bill for dental work, he or she pays the bill and submits a copy of the the bill or a receipt to personnel services. Within two weeks, the office issues a check to the employee for the amount of the bill.

The plan offers employees significant savings, Gregory says, since they don't pay federal, state and social security taxes on any FSA contributions. Employees who use the plan are not allowed to deduct the same expenses on their income tax returns, she adds.

"That would be like double-dipping," she says. "This plan allows employees to realize tax savings immediately as opposed to waiting until the next year when they fill out their tax forms."

The minimum amount to contribute for medical care expenses per year is $180. The maximum is $4,800. For dependent care expenses, the maximum amount employees are allowed to contribute is $5,000 per year for a single individual or a married couple filing joint returns.

Part of the Employee Retirement Income Security Act of 1974, federal guidelines govern what constitutes a "qualifying medical care expense." A brochure summarizing the plan describes such an expense as "a medical and dental care expense incurred for the diagnosis, cure, treatment or prevention of disease and for treatments affecting any part or function of the body."

Expenses solely for cosmetic reasons or for vacations or health club dues, however, are not reimbursable. But a number of common medical expenses (all outlined in Internal Revenue Service publication 102) do qualify for the plan, including health insurance deductibles, dental bills, psychotherapy, prescribed weight loss programs, birth control pills, acupuncture, medical equipment rental and midwife care.

Gregory advises all employees to research which expenses are covered by their health insurance plans before enrolling in the FSA plan. United Healthcare health maintenance organization, for example, will cover medical equipment expenses up to $2,000 per calendar year. An employee can participate in the FSA plan to cover any anticipated expenses over this amount. A popular use of the FSA, Gregory says, is for orthodontic work.

"That kind of expense and the exact amount is easier to anticipate than other medical expenses," Gregory says. Another cost that usually remains constant over the year is childcare, an expense also covered by the FSA plan under its dependent care provision.

A dependent is defined as a child under age 13 or an older person who depends on the employee for at least half of his or her support, regularly spends at least eight hours a day in the employee's household and is physically and/or mentally unable to care for him or herself. Eligible dependent care expenses must be incurred so that the employee can work.

These expenses include fees for a licensed childcare center, a nursery school, in-home care, a daytime summer recreational camp, an adult daycare center or private sitter. Again, using the FSA for these expenses precludes using the same expenses to receive the federal income tax credit when taxes are filed.

One last word to the wise. Estimate your expenses and your contributions to the FSA carefully, Gregory says. Any amount in the account not reimbursed for expenses in that calendar year is forfeited by the employee. For more information on the FSA, contact Taryn Carter, administrative assistant, or Sandy West, benefits coordinator, in personnel services at 865-5280.

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