Advantages all around
Established under Section 125 of the Internal Revenue Code of 1986, a group flexible spending account plan benefits employers and employees alike. Participating employees benefit when they increase their spendable income, while participating employers benefit when they reduce payroll taxes.
The following spending accounts allow employees to pay benefit-related expenses with pre-tax dollars:
Contributions to the employer-sponsored benefit plans. If you need to contribute to the cost of the employer-sponsored benefit plans, such as the medical/dental plans, you may have this deduction taken on a pre-tax basis.
Health Care Flexible Spending Account (FSA)
Covers eligible health care expenses for you and your family not reimbursed by any medical, dental, or vision care plan you or a dependent may have.
Dependent Care Flexible Spending Account (FSA)
Covers childcare, preschool, and before- and after-school care, so you or your spouse can work or attend school full time.
Cash In Lieu of Benefits
Employees eligible to opt out of your school’s insurance plan are required to enroll in a Section 125 Plan. Employees do not contribute to this account. The school pays the cash incentive directly to the employee.
How it works
Prior to each plan year beginning September 1, employees elect the amount of salary they wish to contribute to each of the three above spending accounts. These amounts are contributed via pre-tax payroll deductions throughout the year. As employees incur eligible expenses, they submit claims to the plan. The plan then reimburses these expenses.
Since contributions by employees are not considered gross income, they are not subject to federal, Social Security and, in most cases, state and local income taxes. Therefore, employees effectively increase their spendable income. Note that federal law requires that all spending account contributions be spent on expenses incurred during the plan year; contributions are otherwise forfeited.