Florida Section 125 Cafeteria Health Insurance Plans
Florida Section 125 Cafeteria Health Insurance Plans are not as complicated as they sound. Although they are strictly ruled by the IRS as pre-tax health plans, they are relatively simple to implement and use. These plans are an advantageous way for both employers and employees to save money on taxes while providing health insurance benefits to plan participants. Since employers who offer Florida Section 125 Cafeteria Health Insurance Plans will have different health care choices available, you are bound to find a plan that is suitable for you.
Although some people refer to Section 125 as a separate plan from a cafeteria plan, there is no difference between the two except for verbiage. Section 125 refers to the IRS code while cafeteria plan is a description of the plan’s concept, referring to an employer offering several choices of health care benefits similar to having several choices like in a cafeteria. The plan was a result of the Revenue Act of 1978 and very basically calls for a written plan that offers two or more benefits to an employee. While several plans are available under Section 125 Cafeteria health insurance plans, some are more common than others. Typical plans are health insurance plans, group life insurance plans, and Flexible Spending Accounts (FSAs).
Flexible Spending Accounts Defined
Flexible Spending Accounts have a lot in common with Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs). Typical FSA plans are created for medical or dependent care. Since medical FSAs are not allowed to be used for health insurance premiums, some employers establish special FSAs just for that purpose. Employers can also choose to establish adoption FSAs. Dependent care FSAs apply not only to child care but care for the disabled or elderly as well, so long as the care is being provided to a qualified dependent in order for the plan participant to be present at work.
FSAs can be funded by either the employer or the employee, or both parties can make contributions toward it. They are oftentimes pre-funded by the employer and pre-arranged payroll deductions are taken from the employee’s paycheck in return. Funds from the account are then used to reimburse for qualified out of pocket expenses. For example, in a medical FSA the funds can be used for a co-payment at a doctor’s office, an eye exam, and a bottle of over the counter aspirin. Strict rules governed by the IRS actually document what qualifies and what does not, so be sure to read your plan details carefully. If funds are used inappropriately, your pre-tax benefit will be void and taxes will apply.
Furthermore, expenses almost always have to be backed up by receipts and sent to appropriate departments for review. Receipts do not always document the purchases clearly enough for the people managing the FSA, so review all of your items first to be sure they pass the criteria. This will help expedite your claims and avoid processing delays and tax issues.
An easy way to help manage the expenses is to use a FlexCard, which is a debit card that works off of your FSA fund. There are more than 6,000 FlexCard debit cards in use and even more are projected. Receipts will still need to be sent in as proof of expense, but it expedites the payment process and also keeps the participant aware of balance issues.
The Tax Benefit Of Section 125 Cafeteria Health Plans
Employers receive a tax benefit by offering Section 125 Cafeteria Plans. Because FSAs are funded on a pre-tax basis, employers save on FICA (Federal Insurance Contributions Act), which is actually Social Security tax and Medicare tax, and FUTA, the Federal Employment Tax Act. The employer payroll tax savings for implementing a cafeteria plan is approximately 7.65%.
Employees who are plan participants also receive a tax savings, which can add up to 30%. Employees also save on FICA as well as federal taxes, local taxes, and state taxes. Some people are under the impression that FICA is taxed twice, paid for once by the employer and once by the employee, but actually both entities pay a share of the tax.
The other common misconception about FICA is that the taxes you are paying now are tied to the benefits you will receive later when you are able to claim Social Security. However, that is not the case, as the taxes you are paying today are funding an account that is mostly paying today’s qualified recipients. Instead, when you become eligible, your Social Security benefits will be calculated on your lifetime earnings and your full benefits will be determined by the year you were born.
While many employees like the theory behind an FSA, many have also been scared away by the funding expiration of the plan. Typically, a plan year coincides with a calendar year, and any funds remaining in the account at the end of the plan year were removed from the participant’s account and relinquished to the employer. This means that, for example, if you had a healthy year and didn’t utilize much or any of your FSA funds during the year, you lost that cash benefit of the plan and the unused money was returned to your employer, with the plan starting over again for the new plan year.
However, the FSA plan was amended in 2005 to allow the funds to rollover to the next plan year for up to 2.5 months. This means that if your plan ends in December, you actually could have until mid-March to utilize the funds, even though your plan year had already ended. This extension does not impact employees who are terminated or laid off unless they choose to extend their coverage with COBRA or the like. Otherwise, the plan terminates with employment and the funds are returned to the employer.
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Flexible spending accounts can be very beneficial and should be carefully considered if you are given the option. You can use the Florida health insurance quote tool above to compare different insurance options or call an independent agent at the phone number listed if you have any questions. Just enter your zip code to start comparing FL health insurance quotes now!