What is a Section 125 Plan? These plans are also known as an FSA’s (Flexible Spending Account) or Flex Plans. You may save money by having Section 125 Plan contributions deducted from payroll your gross earnings are adjusted and your tax percentage is applied to a lower amount of income.
Medical Account: You can use pre-tax dollars to pay for expenses that are not reimbursed by your health insurance plan. In the IRS code section 213(d), it defines eligible expenses. Examples of eligible expenses: deductible, coinsurance, copays, prescriptions, dental, vision, hearing, and orthodontic care. There are certain over-the-counter medications that are eligible for reimbursement.
Dependent Care Account: Individuals can set aside pre-tax dollars for day care expenses for dependents under age 13 or for tax dependents
that are incapable of self-care. You (and your spouse, if married) must be working, looking for work (must have income during the year), or attending school full-time.
IMPORTANT UPDATE TO PROGRAM:As part of the Patient Protection and Accountability Act (Healthcare Reform) effective January 1, 2013, each participant, whether single or married, will only be allowed to elect a maximum of $2,500 per year. This is not a rolling effective date that goes into effect with your renewal of your flex plan after 1/1/2013 as did many of the provisions of PPACA.
This creates a situation where an employer sponsored flex plan that has an unreimbursed medical limit that exceeds $2,500 could cause a participant to exceed the $2,500 in 2013.
Example: Plan has a 9/1/2012 renewal date with a $5,000 limit on unreimbursed medical expenses. Employee contributes $4,000 into their flex account. That would equal $333 per month for a prorated total of $2,997. This would exceed the 2013 annual limit
Example: Plan has a 9/1/2012 renewal date with a $5,000 limit on unreimbursed medical expenses. Employee contributes $2,400 into their flex account. That would equal $200 per month for a prorated total of $1,800. Then at renewal the plan would have to make sure that the participant didn’t exceed an additional $700 for 2013 or they would exceed the 2013 annual limit.