Agenda Packets - 1986/03/03 - Laserfiche WebLink

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A�l MEMO To: Mayor L city council FROM: Finance Director -Treasurer Brayer , DATE: February 25, 1986 RE: FLE%IBLF; SPENDING ACCOIIN'rS (FSA) Since 1970 Section 129 of the Internal Revenue Code has allowed employers to sponsor and administer flexible spending accounts for their employees. FSA's allow employees to he reimbursed for certain out of pocket expenses with pre-tax rather than after-tax dollars. A FSA is funded by salary reduction on the part of the employee. An employee's Federal and State tax withholdings are calculated after the salary reductions have been made. Thus, an employee's withholdings are calculated (in a lower amount than an employee who has not elected to participate in an FSA. There are three basic types of FSA's allowerl, They are: 1. Medical 2. Dependent Care 3. Group Insurance A. Group short or long term disability insurance B. Group life insurance A medical FSA may be used to cover deductahle amounts, co -payments, employee contributions, or any other expense not covered under a medical/dental/vision plan. Under a Medical Plan an employee would set aside money in even amounts of each pay check on a pre -income tax basis to cover these types of expenses. Whenever an employee would incur such an expense he/she paVF it, then submits a request to the plan administrator for reimbursement out of his/her FSA account. The types of expenses allowed would he any which could be deducted on an employee's Federal tax return. Without a FSA an employee would be permitted to deduct these expenses from their Federal income tax return only if the expenses amounted to more than 51 of their gross income in any one year. A Flexible Spending Account allows the employee to have these expenses paid in full on a pre -income tax basis up to the amount which they contribute to the Flexible Spending Account. Another Flexible Spending Account allowed under Section 125 of the Internal Rovenue Code is a Dependent Carc' Account. This account allows for reimbursement of Day Carc expenses while both spouses are workinq. This account reimburses an employee for those expenses on a pre-tax basis up to the amount that the employee contributes to the account. The advantage t" the employee is that payment of dependent rare on this basis may present a tax advantage qreater than the child care credit Presently allowed on their Federal tax return. The credit allowed on the Federal tax r,•turn diminish.'s as qr"ss income rises.