College Policy Number/Title:

• 63.07  Benefits

Howard Community College has adopted an additional pre-tax benefit program, effective April 1, 1993, that builds on the existing Section 125* benefit program.  This program, called the Howard Community College Flexible Benefits Plan, already offers employee health premiums on a pre-tax basis under Section 125.  After April 1, 1993, employees have two Flexible Spending Accounts (FSAs). These are:

• Health Care FSA; and
• Dependent Care FSA.

To participate in the FSAs, employees agree to have the college take a set amount "off the top" of pay each pay period through salary reduction. The money in the Flexible Spending Account(s) can be used to cover eligible health and/or child and dependent care expenses.  The college does not withhold federal, state or local income tax or Social Security (FICA) tax on these employee contributions. As a result, those dollars do not count as income on W-2 forms.  When employees draw on Flexible Spending Account(s) throughout the year, they may pay for eligible expenses with pre-tax dollars.  The following expenses are eligible for payment with money set aside in FSAs:

• eligible health care expenses not reimbursed by the college's health plans or by another health plan; and
• eligible dependent care expenses.

CAUTIONS 

Use it or lose it.  Because this offer results in a significant tax advantage for participants, Section 125 of the IRS Code has controls to require a risk on the part of employees.  Therefore, Section 125 requires that employees use all funds designated for the spending accounts for services rendered during that year.  Otherwise, the funds are forfeited.  A second caution is that all Section 125 contributions must be included in calculations of maximum allowable contributions to 403(b) plans.

HEALTH CARE FLEXIBLE SPENDING ACCOUNT  

Health care expenses not covered under the college's health plans (or any other health plan) may be eligible for reimbursement from the Health Care Flexible Spending Account.  Eligible expenses are those expenses for which employees could have claimed a medical expense deduction on an itemized federal income tax return.  These expenses can be found in Section 213 of the IRS Code and are listed in IRS Publication 502.  Please note that the one exception under the Flexible Spending Account is insurance premiums.  Although insurance premiums are an eligible federal income tax deduction, they are not an eligible expense for reimbursement from a Health Care Flexible Spending Account.  This rule, however, does not affect HCC health plan contributions which will continue to be deducted pre-tax. IRS Publication 502 is available from the IRS.

DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT  

Any expenses that qualify for a federal dependent care tax credit for income tax purposes are eligible for reimbursement from a Dependent Care Flexible Spending Account.  If employees elect to receive reimbursements from the Account, the amount of the reimbursements will reduce the amount of any other tax credit.

* For information on existing Section 125 programs, see the "Group Health Benefits" procedure 63.07.03 of the "Benefits" policy 63.07 of this manual.