BASIC Flex
Frequently asked Questions What is a Section 125 – Cafeteria Plan?We call it BASIC Flex, but it goes my many names such as Premium Only Plans (POP), Premium Conversion Plans, Cash-In-Lieu-Of Plans, Salary Reduction Plans, Flexible Benefit Plans, Flexible Spending Accounts, or Cafeteria Plans. They are all regulated by Internal Revenue Code Section 125. This code allows eligible employees to pay for certain fringe benefits that are sponsored by their employer with pre-tax dollars. What is a Flexible Spending Account (FSA)?It is a reimbursement account which can include a Medical Reimbursement Account or Dependent Care Account. Most employers offer both. What is a Medical Reimbursement Account?It is an option offered under an FSA which allows employees to be reimbursed for out-of-pocket medical expenses that are not covered by insurance and meet IRS deductible medical expense rules under Code Section 213. Generally this money is funded by pre-tax payroll deductions by employees. What is a Dependent Care Account?It is an option offered under an FSA which allows employees to be reimbursed for child and dependent care expenses. This is generally funded by pre-tax payroll deductions by employees. This is referred to as a "Corporate Child Care Plan". What benefits can be purchased on a pre-tax basis through BASIC Flex?Only employer sponsored benefits that meet IRS deductible rules qualify for the plan such as:
Dependent Care Account
Medical Reimbursement Account
Premium Account
Medical Insurance
Dental Insurance
Vision Insurance
Accident Insurance
Cancer insurance
Intensive Care Insurance
Hospital Indemnity Insurance
Short & Long Term Disability
Employee Group Term Life Insurance
Accidental Death & Dismemberment (AD&D) How does BASIC FLEX work?The process is very simple. - The employer offers the plan to all eligible employees at which time the employees complete an AGREEMENT TO PARTICIPATE provided by BASIC. This agreement helps the employee determine the contribution to be placed into the flex account during the plan year.
- Each employee's participation is purely voluntary.
- Each pay period this amount is deducted from the employee's pay prior to deducting federal income tax and social security tax. In some areas, the contribution may be excluded from state and local taxation as well.
- The amount is placed into a checking account the employer has opened for the plan.
- As applicable expenses occur, the employee is reimbursed with the monies in his or her account.
What are the advantages of BASIC FLEX?BASIC Flex offers advantages to both the employer and the employee.
The employer...
- Offers benefits that employees desire such as: medical reimbursement and child care reimbursement
- Incurs little or no cost by offering BASIC Flex. In some cases, you actually generate a positive cash flow through tax savings
- Controls the cost of medical & insurance benefits by passing along premium increases to employees
- Attracts and retains quality employees desiring benefit coverage
The employee... - Saves taxes on applicable expenses such as uninsured medical, dental, vision, contributory insurance premiums and dependent care
- Has a very low risk since contributions are determined before participating
- Enjoys a higher spendable income
How do the employer and employees save dollars?Money is saved by the employees because of the tax free status of their contributions. Employees eliminate their obligation to pay Federal, State and FICA taxes on their contribution amounts. Since FICA is a matching tax, the employer eliminates their obligation to pay the matching FICA taxes on the total employee contributions. What are the limitations?The employer sets a limit on the medical reimbursement at the beginning of the plan year and IRS sets the rules on what is reimbursable. Also, IRS sets maximums for dependent care. Allowable reimbursements cannot exceed the total of the employee's contributions. How does the employee save and get reimbursed?As the expenses are incurred, the employee submits a simple reimbursement form (provided by BASIC) and attaches the appropriate receipt. If the charges are applicable according to IRS code, the employee is reimbursed with the funds in his or her account. All applicable charges are defined by the IRS. How often can an employee request reimbursements from an FSA Account?Employees can request reimbursements as often as they wish. All claims are processed daily, five days a week . Dependent Care reimbursements are sent when money is in the employee's account. What happens if funds are not used in a plan year?The IRS rules state that you "use it or lose it." So any funds left in the account are lost. On average, less that 2% of the account funds are typically lost. Employees often use their account balances at year end to pay for eyeglasses, eye examinations, medical examination or other preventative medical expenses eligible under the plan. For groups of 20 or more employees, COBRA would apply. What are the employer's risks?An employee could have applicable charges early in the plan year that exceed his/her contribution deposits to date. In most cases, the Flex plan checking account will have sufficient funds from the employee group to cover this temporary deficit. If it does not, the employer is responsible to make up the difference. This risk diminishes with each passing month of the plan year. Statistics show that employer's tax savings far outweigh this minimal risk. Does BASIC FLEX software for Self Administrator take a lot of time or trouble?No. It is quick and easy to use. An average small company will require only 15 minutes or less each week. What IRS Employer forms do I need to complete at tax time?Employers with 100 or more participants in medical reimbursement on the first day of the plan year will need to file form 5500. BASIC will complete this form for you. How is the W-2 reported at year-end?If an employee earns $20,000, for the year and payroll deducts $1,000 before taxes, the W-2 will report the earned income as $19,000. Do employees have to file special tax forms to get the BASIC Flex benefit?No. However, those employees using the Dependent Care Account must complete form 2441 as required when using the Child Care Credit. Can I start my company on BASIC FLEX at any time?Yes. You can start your first plan any time. After the first year, the plan year will run at full 12-month intervals. If my company uses a payroll service, can I sTill use BASIC FLEX?Yes. Simply notify the service company of the deduction to be made from each employee's check every pay period. The BASIC Flex software will help you to easily identify this amount. What is the Grace Period?The IRS ruling 2005-42 allows for a carry over of unused FSA funds for up to 21/2 months after the end of the plan year. This basically extends the time in which expenses can be incurred from 12 months to a maximum of 14 1/2 months. The employer must request this extension. How do I know if something is an eligible expense?A list of eligible expenses, as well as examples of ineligible expenses, can be found in the BASIC Flex enrollment booklet. If you have a question regarding a specific item or treatment please call a BASIC Flex Customer Service representative at 269.327.1922 ext. 1 or 800.FSA.FLEX prior to treatment or purchase. Are vitamins or supplements eligible expenses?In most cases vitamins and supplements are not eligible expenses under IRS regulations. Below is a listing of a few instances that vitamins and supplements are allowed. - Prenatal vitamins (only during pregnancy)
- Bariatric surgery patients vitamins and supplements are eligible with a letter of medical necessity stating that they are required due to bariatric surgery.
- IRS regulations do not allow reimbursement for food, therefore, shakes and food bars are not eligible for reimbursement. This applies to bariatric patients as well.
- In very narrow circumstances vitamins and supplements may be covered for individuals. A detailed letter of medical necessity showing a specific diagnosis will be requested and processed prior to reimbursement approval.
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