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College Policy Number/Title:

Howard Community College offers all position control/budgeted employees the option to enroll in a flexible spending account for health care and/or dependent care administered through a third party company.  The name of the third party company and its contact information can be obtained in HCC’s yearly benefits guide or from human resources.

To participate, employees agree to have an amount of money deducted pre-tax from each paycheck during the calendar year.  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 accounts throughout the year, they may pay for eligible expenses with pre-tax dollars.  The money in the flexible spending accounts can be used to cover eligible health and child and dependent care expenses.

HEALTH CARE FLEXIBLE SPENDING ACCOUNT  

Health care expenses not covered under the college's medical/dental insurance plans (or any other health plan) may be eligible for reimbursement under the health care flexible spending account.  Participating employees are provided with a debit card that is preloaded with the money they have elected to use for the calendar year.  The debit card may be used to pay for health care flexible spending account items.  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 or on the web page of the third party administrator.  Employees may elect up to a maximum amount determined by the federal government per year.  The amount is listed in HCC’s yearly benefits guide and can also be obtained from human resources. 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 employees’ premium contributions, which will continue to be deducted pre-tax.  IRS Publication 502 is available from the IRS.

DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT  

Employees may participate in a dependent care flexible spending account to cover childcare expenses for children ages 12 and under.  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; the web page of the third party company also lists eligible and non-eligible expenses.  If employees elect to receive reimbursements from the account, the amount of the reimbursements will reduce the amount of any other tax credit.  The dependent care flexible spending account is limited to a maximum amount determined by the federal government per year.  The amount is listed in HCC’s yearly benefits guide and can also be obtained from human resources.

CAUTIONS 

Flexible spending funds must be used by the end of the plan year or they will be lost.  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.  

* 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.

Effective Date:    05/13/11