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Your Cafeteria Plan Benefit

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Presentation on theme: "Your Cafeteria Plan Benefit"— Presentation transcript:

1 Your Cafeteria Plan Benefit
Cal State San Marcos Foundation Select F5 To Run Slide Show

2 What is a Cafeteria Plan?
Cafeteria Plans allow employees to pay for company health insurance premiums, health care costs and dependent care costs with pre-tax dollars Without a Cafeteria Plan, you receive your paycheck first, then after Federal, State and FICA taxes are deducted, you pay for those expenses

3 How do I benefit? Using a Cafeteria Plan, you are issued a paycheck from which your insurance premiums, health care costs and dependent care costs are deducted before Federal, State and FICA taxes This results in a lower gross amount of your income subject to taxes

4 Advantages? Under the Plan, you may elect to receive benefits on a tax free basis. The amount you pay, or spend for group insurance premiums, “out of pocket” medical expenses, as well as child or dependent care expenses, is deducted from your pay prior to the calculation of payroll taxes (Federal, State & FICA) This will in turn increase your net spendable income

5 What does the Foundation’s Cafeteria plan offer?
Premium Only Plan (POP) Allows you to elect to have your insurance premiums deducted pre-tax Reimbursement Accounts Allows you to set aside pre-tax dollars each pay period to pay for Health and Dependent Care expenses Consists of two accounts: Health Care Flexible Spending Account (HFSA) Dependent Care Flexible Spending Account (DFSA)

6 Premium Only Plan If you pay a portion of the monthly premiums for your medical insurance, a cafeteria plan allows you to pay for those premiums with pre-tax dollars Must elect this option on an annual basis If you pay no premiums monthly, no need to elect this plan option Complete a Salary Reduction Agreement

7 Flexible Spending Accounts
Health Care Flexible Spending Account Normal plan year is January 1st to December 31st each year Complete the Flexible Spending Account Enrollment Form Annual Maximum: $2,500 Monthly Minimum: $25

8 Health Care Flexible Spending Account
Amounts you spend for “out of pocket” health care costs fall into this plan Costs not covered by your other employee benefits (examples include medical, dental, vision insurances, and prescriptions) Expenses must be incurred during the plan year or by the end of the “grace period” (i.e., by March 15th of the following year) “Use it or lose it” program applies For specifics, consult a tax specialist, a CPA, or refer to IRS Publication 502

9 What types of Health Care Expenses can I pay for?
Co-pays Insurance Premiums Deductibles Dental Care Vision Care Orthodontia Immunizations Chiropractor Ambulance Contact Lenses Pediatrician Psychiatrist Prescriptions Lab Work Many, Many More…

10 Flexible Spending Accounts
Dependent Care Flexible Spending Account Normal plan year is January 1st to December 31st each year Complete the Flexible Spending Account Enrollment Form Annual Maximum: $5,000 Monthly Minimum: $25

11 How does the Dependent Care Account Work?
You may pay for dependent care expenses for qualifying children and/or dependents incapable of self care. Expenses must be incurred to allow you and your spouse, if married, to work or attend school Child care expenses are allowable for children under the age of 13. Costs for preschool are generally allowable The care can be provided within or outside your home, but, services may not be provided by one of your dependents Services provided by a licensed day care provider must follow requirements for the State in which the provider is located Expenses must be incurred during the plan year or by the end of the “grace period” (i.e., by March 15th of the following year) “Use it or lose it” program applies

12 Dependent Care Continued
Allowed pre-tax up to $5,000 per calendar year if married filing joint return or single filing single return Pre-taxing the expenses precludes you from taking the credit when filing your taxes

13 What is my potential savings?
The tax savings will depend on the employee deferral directed to the Cafeteria Plan and the employee’s tax rate. Example Without Cafeteria Plan With Cafeteria Plan Gross Monthly Compensation $3,000.00 Less Pre-Tax Expenses Group Medical Insurance Premiums $0.00 $75.00 Medical Costs $25.00 Dependent Care Costs $225.00 Compensation Subject to Taxes $2,675.00 Less Taxes and After Tax Expenses Federal Income Tax (15%) $450.00 $401.25 State Income Tax (4%) $120.00 $107.00 Social Security Tax (7.65%) $229.50 $204.64 Insurance Premiums/Medical/Day Care $325.00 Net Pay $1,875.50 $1,962.11 Increase in Income Per Month $86.61 Increase in Income Per Year $1,040

14 Bottom Line! You can either continue to pay for your expenses with earnings after Uncle Sam has taken his chunk…or you can pay those same expenses with a portion of your pay before taxes are withheld! It is up to you to decide!

15 Frequently Asked Questions???

16 This sounds too good to be true…is it?
Even though the benefits may seem too good to be true, Federal legislation passed in 1984 formally recognized and adopted Cafeteria Plans, which are regulated under various sections of the Internal Revenue Code See the IRS website at for further information on Cafeteria Plans

17 Are reimbursements taxable?
Reimbursements for qualified expenses are not taxable. Under Code Section 125, these pre-tax expenses are not declared or reported for income tax purposes, which means they are not taxable now or when filing your taxes!

18 Will this affect my other benefits?
Participation in the Plan will not affect any other benefits you may receive, or your ability to participate in qualified plans (i.e. retirement plans, etc…)

19 What does the phrase “use it or lose it” mean?
The plan is a “use it or lose it” benefit, so a conservative approach when estimating your pre-tax expenses should be used. You will have 30 days after the “grace period” (i.e., 30 days after March 15th = until April 14th) to claim any reimbursements for the previous plan year. Any expenses not claimed will be forfeited. In other words, “use it or lose it!”

20 What happens if I change employers?
The plan provides an extended period of time for you to submit claims for reimbursement to the administrator

21 Do I have to pay for expenses before I am reimbursed?
No. Expenses are reimbursed as they are incurred. It is not necessary that they be paid first (Incurred means the date the service was provided/received at the doctors, dentist – not the date billed or paid)

22 What name is on the reimbursement check?
It is payable to you! The check reimburses you/your family for expenses you’ve incurred

23 How do I know what my balance is?
If you do not claim reimbursements you will receive your account statement at the end of the third quarter of each plan year, otherwise you will receive statement information with each reimbursement check

24 Can I change my pre-tax amounts?
The plan allows for increases/decreases in election amounts in the event of a qualified job or family status change. A qualified change may include: marriage, divorce, adoption, birth of a family member, or a significant change in employment status of spouse

25 May I claim expenses for my family?
Yes! The plan allows you to receive reimbursement for expenses incurred on you, your spouse, and all eligible dependents

26 What if I have other questions?
Call Flex Pensions at (562) Or call Foundation Human Resources at: (760)

27 How do I sign up for the plan?
See the following documents: Instructions for Flexible Spending Accounts Complete the Salary Reduction and Enrollment Form

28 Plan for your future… During the benefit open enrollment periods you have options and decisions to make. Take the time to review all the available options you have. Use your tax advantages wisely and choose the best alternatives for you and your family…

29 The End

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