what is a Flex plan?
A flex plan is a Section 125 Plan, which provides tax savings by reducing employee medical premiums and employee elected dollars for out-of-pocket health care expenses and dependent care expenses from your gross salary prior to calculation of federal income and FICA taxes, as allowed under Internal Revenue Code (IRC) Section 125.
Such plans are known under a variety of terms, including Cafeteria Plan, Flex Plan or POP Plan.
- Cafeteria Plan: including a Section 125 Flexible Spending Account, it structures group benefit enrollment to allow employees to select from a menu of benefits against a defined level of employer dollars to pay for selected benefits.
- Flex Plan: Generally refers to the elective options of medical reimbursement and dependent care reimbursement
- POP Plan: This term refers only to the ability to payroll deduct pre-tax employee contributions to qualified group benefits.
Participating employees avoid federal, state, local, and FICA taxes for all FSA dollars. In addition, these pre-tax deductions by participating employees also save the employer’s matching payroll taxes (Social Security & Medicare).
Section 125 FSAs are often referred to as salary reduction agreements. That is, pre-tax FSA dollars are, in reality, an agreement by the participating employee to reduce W-2 wages. As compensation for this agreement, the employer agrees to pay or reimburse the participant up to the employee elected, scheduled dollar limits.
Section 125 Plans participants are bound by a number of rules designed to protect the integrity of concepts that define the plan.
For an excellent summary of Cafeteria Plan Rules, see IRS Publication 15-B or visit the website: http://www.irs.gov/publications/p15b/ar02.html#d0e174
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Contact our Flex department.
800-FSA-FLEX
800-372-3539
flex@basiconline.com
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