Tax Advantaged Benefits
Tax advantaged plans must follow strict Internal Revenue Service (IRS) guidelines and are designed to give employees the choice to pay certain expenses with pre-tax salary reductions.
Below is a brief overview of some of the tax advantaged benefits employers can set up to help employees with healthcare expenses.
1. Dependent Care Accounts -A Dependent Care Account (DCAP) allows a plan to offer a non-revocable reimbursement benefit to off-set dependent child care provided that the services are a qualifying person's care and must be provided to allow the employee to work.
2. Premium Conversion or Premium Only Plan (POP) - A Premium Conversion or Premium Only Plan (POP) allows employees to pay for their insurance with tax free funds and allows employers to save on taxes.
3. Flexible Spending Arrangements/Accounts (FSAs) - Flexible Spending Arrangements/Accounts (FSAs) allow employers to offer flexible spending arrangements which allow employees to choose between receiving cash or taxable benefits and tax exempt qualified benefits. Plan participants set aside money from their pay on a pre-tax basis to use for eligible medical expenses and dependent care. The IRS requires that employer plans limit the amount of pre-tax dollars that an employee can contribute to a FSA §125 cafeteria plan. Plan participants use the tax free funds to pay for qualified health care expenses with Health Flexible Spending Accounts (Health FSAs) and dependent care expenses with DCAPs.
4. Flexible Credits Plan - A Flex Credit plan is a plan with a non-elective contribution, meaning the employee does not elect the amount of the contribution made by an employer. Flex credit plans can be used to pay for a portion of healthcare premiums and/or dependent care expenses.
5. Health Reimbursement Accounts (HRAs) - A health reimbursement arrangement (HRA) is a tax favored arrangement funded solely by employers (not by the employee’s payroll deduction) and regulated by the IRS. An HRA enables employees to be reimbursed tax free for qualified medical expenses up to a maximum dollar amount during a coverage period. Unused amounts in an HRA can be carried over for reimbursement in subsequent years.
6. Health Savings Accounts (HSAs) – An HSA is an account owned by a qualified individual, generally an employer’s employee or former employee. Both the employer and employee may make contributions to an HSA, up to a certain amount annually, and those contributions become the employee’s property. The contributions are used to pay for current or future medical expenses of the account owner, his or her spouse, and any qualified dependent claimed or that can be claimed on the employee's tax return. Medical expenses that are paid from the HSA are tax free.
7. Opt Out Plans - A health plan opt-out is an optional incentive offered through a cafeteria plan by which an employee can elect to reduce or opt-out of other offered benefits in exchange for cash, alternative benefits or other credits.
8. Transit Benefits- Tax-advantaged transit ("commuter") benefits are governed by IRS section 132(f) and allow employees to pay for certain mass transit and parking expenses tax-free through payroll deductions.
For more information:
- Opt-Out Plans
- Premium Conversion or Premium Only Plan (POP)
- Dependent Care Assistance Program FSAs (DCAP)
- Flexible Credit Plans
- Health Savings Accounts
- Health Reimbursement Arrangements
- Health FSA Overview
This content is being provided as an informational tool. It is believed to be accurate at the time of posting and is subject to change. It is recommended that plans consult with their own experts or counsel to review all applicable federal and state legal requirements that may apply to their group health plan. By providing this information, Meritain Health is not exercising discretionary authority or assuming a plan fiduciary role, nor is Meritain Health providing legal advice.