Flexible Spending Account (FSA)
The Section 125 Flexible Spending Account (FSA) enables employees to pay for specific health and childcare expenses with pre-tax dollars. An FSA not only reduces your employees’ taxes; it also reduces the FICA taxes your company pays. For this reason, each year more and more companies consider adopting an FSA, and more are choosing PacificSource Administrators. We have the capability to tailor an FSA package to meet your company’s individual needs.
Under Section 125, there are four types of plans: Healthcare Expense FSA, Limited FSA (LFSA), Dependent Care, and Premium Only. Whichever plans you choose to offer your employees, there are several common features:
- Employees determine their own contributions based on their expected expenses.
- Once employees estimate their out-of-pocket expenses for the plan year, this amount is divided by the number of pay periods in that year and deducted pre-tax from each paycheck.
- We provide all necessary enrollment materials and assist you in customizing informational materials. We also educate employees about the benefits and risks that may be involved in participating in the plan.
- We handle reimbursement, issuing checks or direct deposits directly to the participants within approximately one week of receiving their request.
- At the end of the plan year, any unused funds in the FSA account are forfeited to the employer.
- Benefit debit card: For a small additional charge, you can provide your FSA enrollees with a benefit debit card, a special MasterCard® that draws on the value of the FSA election amount. For more information, download our flier (PDF) or visit our Benefit Debit Card page.
Healthcare Expense FSA
This account allows employees to set aside pre-tax money to pay for medically necessary healthcare expenses that are not covered by a health plan. Eligible expenses include health insurance deductibles, coinsurance, copayments, dental care, vision care, and prescriptions.
Limited FSA (LFSA)
The LFSA lets participants set aside pre-tax dollars to use toward reimbursable dental and vision expenses. For more information, please see our list of LFSA eligible expenses.
Dependent Care FSA
This account allows employees to set aside pre-tax money to pay for dependent care expenses. Employees may either participate in this FSA or take the IRS standard dependent care tax credit, but not for the same expenses. Many times, the FSA provides a greater tax savings than the tax credit option.
Premium Only Plan
This basic plan allows employees to set aside pre-tax money to pay for their portion of their health insurance premium. Because employees know in advance how much their premium will be, there is no need to estimate this expense. They also don’t have to file any additional tax forms as their W-2 will simply reflect the lower taxable income. Most employees will accomplish enrollment automatically through a negative election.