Insurance: Chapter 10 Flashcards
What are section 125 cafeteria plans?
They permit employees (within limits) to choose the form of employee benefits they want from a “cafeteria” of benefits provided by their employer. They must include an option to receive cash in lieu of non-cash benefits of equal value (cash option).
What are some examples of choices a cafeteria plan must include?
- Term life equal to 2 times salary
- Medical insurance for employee
- Short or long-term disability insurance
- A 401(k) plan can be offered under a cafeteria plan
What are the two types of flexible spending accounts most cafeteria plans offer?
One for qualified medical expenses and one for dependent care
What are the rules for elections, contributions and reductions of salary for an FSA of an employee?
Before the end of the prior calendar year, employees must file a written election with their employer to have their salaries reduced by the amount they choose to allocate to their FSA. The dollar limit must by made before compensation is earned and the reductions are not subject to income tax. May be used for medical, dental and vision expenses.
What is the 2022 contribution limit for a health FSA plan?
$2,850, but this limit only applies to salary reduction contributions. And does not apply to employer non-elective contributions used to pay for an employees share of health coverage premiums.
What restrictions or limits may any employer put on a health FSA plan?
- They may adopt retroactive amendments to impose the $2,850 limit before 12/31/22
- They may allow a 12 month grace period for employees to spend unused salary
reduction contributions, carried over amount will not count against next years
contribution limit - May allow employees to carry over unused money up to full annual amount from
plan year 2021 to 2022 - May allow health FSA participants to maintain a $570 (2022) balance in their FSA
accounts indefinitely
*Employers may offer either a grace period or rolling balance but not both
What reimbursement limit and rules of a dependent care FSA?
The maximum tax free reimbursement limit is $5k, any tax free reimbursement reduces the expense eligible for the dependent care credit. If married both spouses must earn income for dependent FSA to be available unless the spouse is disable or a student. If spouse makes less than $5k per year then the benefit =’s what that spouse makes.
What are the main qualification for eligible expenses for dependent care FSA?
Participant’s dependent children must be under 13, or any person the participant claims as a dependent must be mentally or physically incapable of caring for themselves (must live with you at least 8 hours per day). Expenses can be reimbursed only after they occurred
What expenses are not eligible for reimbursement for dependent care FSA?
- Tuition and fees
- Expenses for children 13 and over
- Late payment fees
- Overnight camps
- Payment for services not yet provided (advance payments)
- Field trips, clothing and food
- Transportation to and from the dependent care provider
When does an FSA coverage period end?
Either at the time the “plan year” ends for your plan or at the time when an employee’s coverage under that plan ends (ie separation from employer)
What are the advantages of an FSA?
Participating employee’s entire annual contribution is available at the beginning of the plan year, if the employee is terminated they do not continue to contribute to the plan after termination
What are the disadvantages of an FSA?
Any money that is left unspent at the end of the coverage period is forfeited and can be applied to future plan admin costs. Under most plans the coverage period ceases upon termination.
What fringe benefits are deemed to be tax free under the Tax Relief Act of 2001?
- Premiums the employer pays to a health plan for the employee, spouse or dependent
- Insurance premiums paid by the employer on a group life policy
- Value of qualifying day care services provided by the employer
- Company car for only business purposes
- Commuter highway vehicle and transit passes ($280 per month cap)
- Employer provided parking slots or subsidized parking ($280/month cap)
- Occasional overtime meal money, cab fare, theater or sporting event tickets
- Value of discounts on company products if it does not exceed company gross profit %
- Discounts on services limited to 20% of the selling price charged customers
What fringe benefits are deemed to be taxable under the Tax Relief Act of 2001?
- Health insurance premiums paid for self-employed individuals, partners and more
than 2% owners of an S corp. Although 100% deductible as adjustment to gross
income on front of the 1040. - Employer paid premiums on a group life policy in excess of $50k of death benefit if
plan is non-discriminatory
What benefits can be included on a voluntary employee beneficiary association (VEBA)?
- Death benefits
- Medical expense benefits
- Disability benefits
- Legal expense benefits
- Unemployment benefits
- Child care benefits
- Severance benefits
- Education benefits
