What is a Cafeteria Plan?

A Cafeteria Plan is a written benefit plan which allows eligible employees to pay for Benefit Options with Pre-tax Contributions. The Benefit Options are usually Insurance Premium Benefits, Flexible Spending Accounts for medical expenses, Dependent Care expenses, and individually owned health insurance premium accounts.

Who can participate in a Cafeteria Plan?

Each employer determines the eligibility requirements for participation in their Cafeteria Plan. The usual terms involve the number of hours worked per week, time employed, union or non-union participation, and age. The plan is available to the eligible employee and their tax dependents.

How will a Cafeteria Plan Benefit me?

By participating in the plan, you will not have to pay income tax or Social Security on your elections. Below is an example of the savings possible by participating in a Cafeteria Plan:

Plan participation will reduce the amount of your taxable compensation. However, there could be a decrease in your Social Security benefits and/or other benefits (e.g., pension, disability, and life insurance) that are based on taxable compensation.

How do I enroll?

There is an annual election process where you can submit a benefit election form. If you are a new employee, you can submit a benefit election form when you meet the employer’s eligibility requirements.

What if I don’t return a Benefit Election Form?

• If you are not currently enrolled in the cafeteria plan, it is assumed that you don’t want to participate.

• If you are currently enrolled in the Plan, the actions depend on your current elections:

• If you currently have elected insurance premium benefits, it will be assumed that you want to continue these elections, and your deductions will continue to be withheld pretax for the next plan year.

• If you currently have elected a Health FSA, Dependent Care Assistance Plan, or Individually Owned Health Insurance Premium Account, it will be assumed that you do not want to continue participation in these accounts and your deductions will cease at the beginning of the next plan year.

What is an Insurance Premium Account?

You can elect to have your premiums for accident or health plans offered by employer deducted pretax. You can also elect to have premiums for Group Term Life insurance for coverage of $50,000 or less deducted pretax. Premiums for coverage in excess of $50,000 are taxable.

How Does a Health FSA Work?

Under a Health FSA, you can elect to have a certain amount of your salary set aside to pay for out-of-pocket medical and dental expenses. This money is deducted from your pay (before taxes are calculated) and put in your Health FSA. You then submit claims against your Health FSA to pay for your out-of-pocket medical and dental expenses, or if your company participates, can use a special Health FSA debit card to pay for these expenses.

There are three main parts to a Health FSA. Below is an explanation of the three parts:

1. Contributions: When you decide to participate in a Health FSA, you elect to have a certain amount deducted from each paycheck to go into your Health FSA. This is your contribution.

2. Current Annual Election: This is the total amount of all contributions you will make in the entire Plan Year. For example, if you have $50 deducted from each paycheck and you are paid 24 times per year, the annual election is $50 X 24, or $1200.

3. Uniform Coverage: This is an IRS term that means that, at any time, you can be reimbursed for claims up to your Current Annual Election minus any previous claims. It doesn’t matter how much money you have contributed so far in the year. For example, if your current annual election is $1200, and you have submitted claims for $200, you have $1000 available for claims payment regardless of the amount that you have contributed so far in the year.

What Out-Of-Pocket Medical Expenses Are Covered?

There is an exhaustive list of allowable expenses on the website. A short list of the most commonly claimed expenses is:

• Doctor office co-pays

• Eyeglasses, contacts

• Prescriptions

• Orthodontia

• Dental work (non-cosmetic)

• Chiropractic care

• Acupuncture

• Over the counter (OTC) medications and other health products that treat an existing condition or disease. (e.g., allergy medications, antacids, cold remedies, nicotine gum and patches, eye care, and first aid products)

How Do I Get My Money Out of My Health FSA?

There are two ways to get the money:

1. Use of a Cafeteria Plan debit card. If your company participates in this option, you can use the special debit card when purchasing allowable out-of-pocket expenses. You may or may not have to present receipts to the Plan Service Provider to prove that it was an allowable expense. You will be notified via e-mail whether you need to submit a receipt to identify the type of expense.

2. Submittal of a Claim for reimbursement. If you don’t use the debit card, you must fill out a claim form following the following rules:

• The expenses must incurred during the Plan Year or the grace period.

• The claim must have bills or receipts from the provider. The receipt must show what the expense was, the service date, and the name of the provider.

Can I change my FSA Election?

The IRS has limited the events that allow you to change your Health FSA election. Normally, you cannot change your Health FSA election when you have a change in cost or coverage under a health insurance policy. You can usually change your election when you have a change in your marital status or number of dependents.

What happens if I don’t have enough expenses to be reimbursed for the whole amount that I have contributed?

The IRS does not allow any unused contributions to be carried forward to the next plan year or to be refunded to you. You should be careful in estimating your expenses to determine your annual election.

What is a Dependent Care Assistance Plan (DCAP)?

The IRS allows you to exclude from your gross income a certain amount of the dependent care expenses that you pay in order to work (or look for work), and there are two methods for you to do this. You can deduct your expenses as a Dependent Care Tax Credit when filing your income tax return, or you can participate in a Dependent Care Assistance Plan (DCAP) through your cafeteria plan.

How do I know whether to use the DCAP under the cafeteria plan or the Dependent Care Tax Credit when filing my income tax return?

As a rule of thumb, if your income tax bracket is 15% or less, you will probably come out ahead by filing for a tax credit on your income tax return. However, this varies depending on your filing status and how many dependents you have. There is a comparison tool on the website to help you make this decision.

Must my spouse work in order for me to participate in DCAP?

Your spouse must be gainfully employed, in active search of gainful employment, be physically incapable of self-care, or be a full-time student. Unpaid volunteer work is not considered gainful employment.

If you divorce and remarry, your spouse must also be gainfully employed even if your spouse has no legal connection with the children.

Who can I pay for dependent care for under DCAP?

There are two types of qualified individuals:

1. Dependent aged 12 or younger. This is a dependent living with you who you can claim as a dependent on your income tax return.

2. Disabled spouse or dependent. If your spouse or dependent is physically or mentally incapable of self-care, that person is a qualified individual.

What are eligible expenses under DCAP?

You can only claim expenses that are “employment-related expenses” or expenses which meet both of the following criteria:

• The dependent care is necessary for you and your spouse to be gainfully employed or to actively search for gainful employment (or to be a full time student), and

• The dependent care is for a qualifying individual.

The following expenses are not reimbursable:

• Overnight camp (not even if the charges for day and night are split out)

• Care where the provider is your child that is under 19 years old

• Care provided by a provider who doesn’t report their income to the IRS

• Payment to someone that you or your spouse can claim as a dependent for federal income tax purposes

• Educational expenses for kindergarten and above

How much can I claim for DCAP?

The most you can claim in a calendar year is the smallest of the following amounts:

• $5,000 if you are married and filing a joint return or you are single ($2,500 if you are married, but filing separately),

• Your earned income, or

• If you are married at the end of the taxable year, your spouse’s earned income.

If your spouse is a full-time student, your spouse will be considered to have earned income of $200 for one child or $400 per month for two or more children.

How do I get reimbursed for DCAP?

Submit a claim form for expenses incurred during the plan year for expenses already incurred. The claim must be accompanied by a bill or receipt from the provider. If the balance in your DCAP account (contributions to date minus previous payments) is not sufficient to pay expenses, you will be paid the amount in your account. After you contribute more money to the account, you will automatically be reimbursed for the difference.

What happens if I change day care providers or the provider changes rates?

You can change you election if your day care provider changes rates. If you switch day care providers, you can change your election accordingly.

What happens if I do not have enough expenses to be reimbursed for the whole amount of DCAP that I have contributed?

The regulations for cafeteria plans do not allow any unused contributions to be carried forward to the next plan year or to be refunded to you. You should be careful in estimating your expenses and making your annual election.

What is an Individually Owned Health Premium Account?

This is an account where you can have your premiums for individually owned insurance deducted pretax from your paycheck. Health policies that are qualified meet the following conditions:

• Policy must provide accident or health insurance (e.g., health, dental, vision)

• Policy must be an individually purchased contract and not an employer-sponsored insurance plan.

• You must be the policyholder of the insurance policy; however, your spouse and dependents can be covered under the policy.

• The premium for the policy must be billed directly to you.

How do I get reimbursed for Individually Owned Health Premiums?

File a claim form and attach a bill or invoice from the carrier showing the amount of the premium and the period of the coverage. If the balance in your Individually Owned Insurance account (contributions to date minus previous payments) is not sufficient to pay the claim, you will only be paid the balance in your account. After you contribute more money to the account, you will automatically be reimbursed for the difference.

What happens if I do not have enough expenses to be reimbursed for the whole amount that I have contributed to the Individually Owned Insurance Account?

The regulations for cafeteria plans do not allow any unused contributions to be carried forward to the next plan year or to be refunded to you. You should be careful in estimating your expenses and making your annual election.