Flexible Spending Account

FLEXIBLE SPENDING ACCOUNTS

Flexible Spending Accounts (FSA) allows you to have money deducted, on a pre-tax basis from your paycheck and placed in an account from which you are reimbursed for non-covered medical and/or dependent care expenses. Since the funds are taken out before taxes, you may actually save money with FSA.

Health Care Flexible Spending Account

This account will reimburse you with tax-free dollars for unreimbursed medical or dental expenses incurred by you, your spouse/domestic partner or your dependent.

You may elect to contribute up to a maximum of $8,000 to the Health Care FSA for the 2004 plan year. The minimum annual contribution is $200.

Examples of Eligible Medical and Dental Expenses:

Copayments, deductibles and coinsurance
Expenses that exceed usual, reasonable and customary (UCR) limits
Vision or hearing expenses not covered by your plan
Unreimbursed expenses for mental health care
Unreimbursed chiropractic expenses
Over the counter medicines and drug
Any other expense that would qualify as a medical expense deduction for federal income tax purposes

Examples of Expenses that do NOT Qualify for Reimbursement:

Health or Dental plan premiums (including COBRA)
Health club dues
Cosmetic surgery that is not medically necessary
Long-Term Care insurance premiums
Any other expense that would NOT qualify as a medical expense deduction for federal income tax purposes

You can obtain a complete list of eligible expenses in IRS Publication 502-Medical and Dental Expenses. This publication is available at your local IRS office or on the IRS website, www.irs.ustreas.gov/.

Dependent Care Flexible Spending Account

This account will reimburse you with tax-free dollars for day care expenses incurred for your dependent child under age 13 while you and your spouse (if married) are at work. Day care expenses incurred for dependents age 13 or over are considered eligible only if the dependent is physically or mentally disabled, spends at least eight hours a day in your home and depends on you for at least half of his or her support. To be eligible, the child, spouse or parent must be a dependent you claim on your federal tax return.

You may elect to contribute up to a maximum of $5,000 to the Dependent Care FSA for the 2004 plan year. The maximum is $2,500 if you and your spouse file separate federal income tax returns. The minimum annual contribution is $200.

Examples of Eligible Dependent Care Expenses:

Payments for dependent care services provided in the home. The services cannot be provided by someone you also claim as a dependent, or by your child under age 19, whether or not a dependent.
Pre-school or nursery school tuition (below first grade)
Day camp
After-school programs
Child care centers

Examples of Dependent Care Expenses that are NOT Eligible:

Education expenses for the first grade or higher
Payments to a care giver while at home sick from work
Round-the-clock nursing home care
Overnight camp
Transportation to and from a care site

If you use the services of a dependent care center that provides care for at least six individuals, the center must be in compliance with state and local laws.

You can obtain a complete list of eligible expenses in IRS Publication 503-Child and Dependent Care Expenses. This publication is available at your local IRS office or on the IRS website, www.irs.ustreas.gov/.

FSA Enrollment Considerations

If you do not incur enough eligible expenses by year-end to receive all the money back from your account, the balance is forfeited as stipulated by Section 125 of the Internal Revenue Code. The unused balance cannot be carried forward to the next plan year. In addition, you cannot use money in your Dependent Care FSA to pay health care expenses or vice versa. It is important that you estimate your expenses carefully, so as not to lose the money you have elected to set aside.
You cannot be reimbursed “in advance” for your expenses. If your care is given in-network, you should save your receipts until you have a total of at least $50 in co-payment charges, and then you may submit those charges for reimbursement.
You can be reimbursed for eligible health care expenses, up to the total of your yearly contributions, even before your contributions to the Health Care FSA have been made. For instance, if you authorize $1,000 in Health Care FSA contributions, $83.33 would be withheld, from your paycheck each month. If you have $250 in eligible expenses in February, you would be reimbursed the full $250, even though your contributions to date were only $166.66.
Your dependent care expenses can be reimbursed only up to the current balance in your Dependent Care FSA. In addition, if you are reimbursed for dependent care expenses through your FSA, the same expenses cannot be applied toward a tax credit on your federal income tax return.
You may want to compare your tax savings for dependent care under the FSA plan with the tax credit you could receive at year-end when you file your federal income tax return. You can claim the tax credit only for expenses that were not reimbursed through your Dependent Care FSA. You should speak with a tax advisor to determine which option is best for you.
Your 2004 Flexible Spending Account(s) can only be used to reimburse you for services performed in 2004. A bill that you receive in 2003 for services performed in 2003 will not qualify. On the other hand, to accommodate any delayed billings, you will be permitted to submit bills for reimbursement up to March 31, 2005, as long as the bills are for services rendered in 2004 and there is sufficient money left in your 2004 account.

Filing A Claim

In order to receive a reimbursement for eligible health care or dependent care expenses a claim form with appropriate documentation must be filed with our third-party administrator, BeniSource. The claim forms are available at our website, www.pace.edu/hrhttp://www.pace.edu/hr. If you have any questions regarding your account, you may contact them directly at 1-800-344-2954 or visit their website at www.benisource.com

The Tax Free Advantage

Your share of the cost of medical coverage and dental coverage is withheld from your paycheck with pre-tax dollars before federal, state and social security taxes are taken out. Your contributions (if any) to the Flexible Spending and Commuter Reimbursement Accounts are also made on a tax-free basis.

Here is an example to show how pre-tax contributions can help you save on taxes. Let us assume the following:

Employee Elections	Annual Employee Cost *
HealthNet POS Family	$4,797.00
DeltaCare Family	409.00
HealthCare FSA	1,500.00
Commuter Reimbursement	840.00

Total Yearly Contributions	$7,546.00

Annual Salary: $50,000	Tax Bracket: 25%*

	Tax-Free	After-Tax
Annual Pay	$50,000	$50,000
Total Yearly Contributions	7,546	0
Taxable Income	42,454	50,000
Federal Income Tax	10,614	12,500
Social Security Tax	3,248	3,825
After-tax Expense	0	7,546
Take-Home Pay	28,592	26,129
Tax Free Savings	$2,463

* Based upon 2004 health plan premiums and 2003 tax table.

If state taxes were included in this example, your tax savings would be even greater.