Medical Flexible Spending Accounts (FSAs)
Get more out of the money you earn – pay eligible health care costs with your before tax-dollars
The Federal Government permits employees to set aside a portion of their pre-tax income to pay for qualified medical and dental expenses that are not covered by insurance. If you anticipate significant out-of-pocket expenses for health care, you can save quite a bit by paying those expenses with pre-tax dollars.
FSAs must be done through your employer’s payroll system. If you are on the Diocesan Payroll Service and meet the eligibility requirements, you can have an FSA.
You must be careful. There are restrictions and risks. Normally, you may not raise or lower your FSA withholding during the year. If you don’t use all the money you have set aside, you lose it.
By estimating the expenses not covered by your medical and dental plan, like co-payments, deductibles and coinsurance and eyeglasses, you can then arrange to pay for these expenses with pre-tax dollars. You decide how much money you want to set aside each paycheck for these unreimbursed expenses. This amount is then deducted from your pay before taxes are calculated. Since your taxable income is less, the income tax you pay is less. The money you choose to set aside is put into your own personal FSA until you need it.
For example, let’s assume you typically spend $750 in a year on medical expenses that would be eligible under this FSA program. Right now you are paying for these items from your take-home pay— money on which you have already paid Social Security, Medicare, Federal, State and local taxes. You may have to earn $1.35 or more in order to take home $1.
Under the FSA plan, you could elect to deposit this anticipated $750 into your FSA through payroll deduction (that is $31.25 per paycheck when you are paid twice a month). Your taxable income would be reduced by this amount each paycheck, which would in turn reduce your taxes. Assuming an annual salary of $30,000, and a tax burden that includes FICA withholding, Federal, NYS and NYC income taxes, your savings might look like this:
|With FSA||No FSA|
|FSA allocation (annual)||(750)||0|
|Taxes (FICA, Fed., NYS, NYC)||(7,550)||(7,779)|
|Unreimbursed medical expenses||0||(750)|
|Take-home pay after taxes & $750 out-of-pocket medical exp.||$21,700||$21,471|
Tax savings would be even greater for clergy, who must pay 15.3% self-employment tax on their compensation. This is an example only. The tax savings will vary depending on your income level and tax circumstances.
Because FSA allocations are not subject to FICA or self-employment tax, your Social Security wage base will be lower by the amount of the FSA. This may have a minor impact on your Social Security benefit.
Refer to the Flexible Spending Account Specifications Sheet to see if you are eligible to participate in this program.
Review the list of some of the common medical care expenses the IRS considers deductible. If you incur expenses for any of these treatments, you are eligible for reimbursement through your FSA, provided you have not been reimbursed for them through any other coverage.
“Use it or Lose it”
Grace Period for FSA 2017: Jan 1 2018 to March 15 2018
You must enroll each year by Dec. 10 of the previous year. Each year your annual deposit can change. New employees may enroll effective the first of the month following their date of hire.
During the plan year, you are not allowed to make any changes to your FSA contribution unless you experience an IRS-defined “family status” change, such as:
- Birth/adoption of a child
- Death of spouse/dependent
- Termination of spouse’s employment
As you or an eligible dependent incur any expense eligible for reimbursement under the plan, pay the bill and get a receipt. File a Request for Reimbursement form (make copies of the enclosed sample), attach documentation for each expense, and submit it to AETNA. AETNA manages the FSA for the Diocese of NY. A check will be issued directly to you. Providers are not paid directly; only you can be reimbursed for amounts you have paid. Proper documentation must be provided. You must show that you have already paid and that your insurance will not pay the amount.
There is a $25 minimum reimbursement amount. Hold on to receipts for small amounts until they total at least $25.
After the end of the plan year (as indicated on the Plan Specification Sheet) there is a 90-day period during which you may file requests for reimbursement for expenses incurred before the end of the plan year. Thus, all expenses for 2017 must be submitted by March 15, 2018.
Take time to review all the pertinent information, then contact the Plan Administrator at the diocesan office with questions or concerns. It is also wise to consult with your tax adviser.
Diocesan Benefits Coordinator
Ms. Sara Saavedra
Convention Officer, Assistant Secretary of Convention, Diocesan Benefits Coordinator, Secretary to the Standing Committee