By Mark Ward
Many businesses utilize the tax savings benefits of Cafeteria Plans. Cafeteria Plans use Section 125 of IRS code to allow employees to pay qualified insurance premiums tax free while also allowing employees to contribute pretax dollars to a Flex Spending Account. These Flex Spending Accounts allow employees to pay certain qualified expenses on a pre-tax basis, thereby reducing their total taxable income. On average, employees save from $.25 to $.49 for EVERY dollar they contribute to the FSA.
Recently the IRS issued a notice which modifies the “use-or-lose” rule that applies to health flexible spending accounts (health FSAs). Currently, any money that is left in an account at the end of the calendar year is automatically forfeited. Beginning in 2014, however, up to $500 can be rolled over to the following year. The maximum yearly allowable amount will remain the same in 2014 at $2500. The maximum allowed amount is in addition to any unused balance carried over.
There is one downside of the new carryover allowance, though: If a plan takes advantage of the carryover, it may no longer use a grace-period to allow prior year balances to cover expenses incurred during the first two and a half months of the current year. Any grace-period provision will need to be eliminated once the carryover provision is implemented. (This and additional information is available on our HR Support Center website).
We are continually striving to simplify and enhance your payroll experience with us and always want to exceed your expectations. This month we will be sending out a survey about our services and what we can do to better serve you. Watch for the survey in your email and please take a few moments to give us the feedback we need to provide you with the products/services that empower you and your business. Thank you – we love working with you and your businesses!