The below post is taken from the Video Blog, the Subject Matter Minute. You can view the episode on YouTube if you would like. Find it here: Episode #70 – Flexible Benefits Plan
If YouTube is blocked for you or your agency, you can scroll to the bottom of this post to view it from Google Drive. (I would prefer you view it on YouTube, so I know how many people have watched)
You can also listen to an audio version.
Hello and welcome to the Subject Matter Minute, I’m Matt Nagy, thanks for joining me! Thought I would celebrate the cowboys first win of the season today with my fancy rugby shirt. Hope you like…
If you have dug through the past Subject Matter Minutes, you will recognize this as a redo. There have been just enough changes, since 2016! to warrant a new episode. I will also be doing a new episode taking you through the process of submitting medical and dependent care reimbursement claims. So… today’s episode on the Flexible Benefit Plan is taking the place of episode #6. Please remember that because some episodes are being replaced, and YouTube doesn’t allow you to simply replace a previous video, the numbering will be inconsistent within the YouTube playlist. However, all of the current topics will be contained in that playlist. You can find the link to the playlist in the show notes.
Ok… today we are covering the Flexible Benefit Plan. (music)
Alright, the Flexible Benefit Plan. I guess this type of account is also known as the cafeteria plan, flexible spending account, or the 125 plan, just in case you’ve heard of those.
Before I get started, though, I want to thank this month’s subject matter expert, or experts…. it’s the folks down at EGI. Specifically Karissa Toalson and Karyn Williams. They got me the information, and hopefully I do it justice. It’s a lot of great information. Thanks Karissa and thanks Karyn, I appreciate it.
Really there are 3 components to this and keep in mind these are all IRS regulated benefits because they are tax sheltered, if you aren’t sure of the implications be sure to research or call EGI before electing them. (ok, first disclaimer out of the way) The first component is to have your health, dental and basic employee life insurance premiums, your monthly premiums, taken out of your pay, pre-tax. Doing so locks you into those benefits for a calendar year, unless you later experience a qualifying event that would permit changes. (you can watch the Qualifying Event video on EGI’s website to see what those are)
The second component is a medical reimbursement account. This is an account that allows you to take money out of your pay, pre-tax, and you can use that money on medical expenses that you incur throughout the year, . Basically, medical expenses that your insurance doesn’t cover. At the time of this recording, you can put up to $3192 a year into that account (per employee), you don’t have to put that much, you can decide, and it’s a monthly deduction. Please know that these numbers can change year to year, so check with EGI. Unless you are watching this at release time, it’s likely a different number.
There’s also a medical reimbursement account for you folks who have a high deductible health plan. This is called a wraparound medical reimbursement account. It’s very similar, but the difference is that you can’t use the money in that account for items that are run through the health insurance plan including your deductibles, co-insurance or prescriptions. . You can only use it for things that are truly not part of the health insurance plan, which is things like vision, dental, orthodontics and some over-the-counter supplies. It’s a bit confusing, so please contact EGI with questions. So those are the folks with a high deductible health plan. That’s still a medical reimbursement account, it’s just that they have a slightly different one.
Ok… so, that’s the medical reimbursement account…
The 3rd component of the flexible benefit plan is dependent daycare reimbursement. You can get reimbursed up to $5000 in a year, (per family) for day care, home care, or child care bills for care of a dependent child under age 13, a disabled child of any age, a disabled spouse or a disabled dependent parent.. Same deal, you’ll sign up for it, they will take the money out monthly, up to $5000 that you can put towards this care. Again, check with EGI for the most recent numbers.
I’ve explained the components of it, and at this point you’re wondering, ok, this is all my money… and then you are putting it in an account…. what’s the point? There’s actually a couple. First of all, all of this money comes out of your check pre-tax. So, it reduces your taxable income. So the less money you make in the government’s eye, the less tax you pay.
Let’s run a little scenario. Let’s pretend I have 2 kids that are still in daycare. If you have 2 kids in daycare, it’s going to easily be over $5000 for the year. So, you do that maximum, and they take out $5000 pre-tax. Then you know that with a family of 4, like I have, we typically have… mental health bills, specialist visits, vision and all these other tidbits… we are easily going to have over $3000 in extra medical expenses. So we max out our medical reimbursement account. That’s $3192. Then I also choose to “take out my health insurance premiums pre-tax.”
So, our monthly cost for health insurance is currently $386, for the family… that’s going to come out pre-tax. So you have the $5000, you have the $3192, and then you have nearly $5000 in health insurance premiums. We are talking about a $13,000 reduction in your taxable income. Now that’s a big deal. And it could even be a bigger deal … I’m not an accountant… but if it was to put you down into a lower tax bracket, you would save even more.
So you are saving on taxes. That’s one reason you want to do this. There’s other reasons. One of them is that with the medical reimbursement account, you can use that money any time during the year. You sign up for it. Let’s say you decide on $1200 for the year. $100 a month. If you decide that you want to get lasik surgery in March, you can go ahead and claim that whole amount, even though you haven’t actually had it taken out of your checks yet, and pay for your lasik surgery. So you can do it at any point.
Now it’s different with the dependent daycare account… You actually have to have the money in your account before you can use it.
There’s a very important piece of this that you need to know and keep in mind when you are signing up and choosing the amounts you want to do. This program, both the medical reimbursement and the daycare reimbursement are “use it or lose it.” That means that if you decide to take out $5000 for your daycare, and you don’t claim the entire amount by the yearly deadline, you forfeit the money. However, reimbursement accounts can be changed with certain qualifying events, so please contact EGI for more information on that.
I know that sounds mean, but on the flip side, if for instance, with your medical reimbursement, you sign up for $100 a month, cause you are going to get lasik in February. So you claim all that money that you haven’t yet taken out of your checks, and then you quit your job in March, the State loses money. So there is risk both ways.
Another important thing to know is that we must re-elect the reimbursement accounts every year. So, during the open enrollment period, which just opened up, you will need to select and choose an amount every year. It’s hard to miss when going through the open enrollment process in the portal… so that’s good.
So you sign up for all this… you get all the appropriate paperwork done… which, like I said earlier, I will have another episode on how to submit all this stuff. You submit it all, you go through the process, “boom,” you’ll get a check from EGI or, of course, you can sign up for direct deposit.
Which brings up another thing. You can do it in any fashion that you want. If you have $2500 in the medical reimbursement account, you can turn in your paperwork monthly and get monthly checks, or, like I do, you can wait until the end of the year, and get a big check. If it’s little things along the year that you are paying for and you can go ahead and do that, it’s kinda like a savings account for you in that if you turn in everything at the end of the year, you will get the total at the end. It’s a chunk of money, it’s nice.
That’s another benefit… at least I consider it one… it’s automatic savings for something that you are going to have to spend money on anyways. I don’t know how you guys are, but for me, it’s really hard… even if I know I’m going to have lasik in October, I can say that I’m going to save for it, but the odds are pretty good that I won’t. And then I’ll have to slap it on a credit card. So this is a way of doing it. They do it automatically, it’s there, you can use it at any point.
On that… the timelines… If you are doing a medical reimbursement for the year 2024, you have until March 31st of 2025 to turn in the paperwork but remember your services have to be incurred in the calendar year (in this case 2024) even though you have until March of the next year to submit for reimbursement. You could, and should probably, do it before that though. The money cannot be carried over for the next year’s services; if you cannot claim it, you forfeit it, so plan accordingly.
So, I talk fast… seems like a lot of information… I hope that you can tell that I think that this is a very good idea. Reducing your taxable income, paying less in taxes, and allowing them to put aside the money for you. Doing it automatically. Being able to pay for things up front. Even when you don’t have the money in the account yet. All these things… Great benefit from the State of Wyoming. Use it if this is something that you are going to spend money on anyways. Unless there is something your accountant says otherwise, definitely get your health insurance premiums taken out pre-tax, reduce your taxable income. That’s my financial advice, I am not a financial advisor, but I did stay at a holiday inn express last night!
If you have more questions, please visit the EGI website, check out the Flexible Benefits book, or contact EGI directly. All of that info is in the show notes. Since open enrollment has just opened, I also included a link to the how-to video for the portal. Don’t forget to go through the process!
Thanks for joining me and I’ll see you next time!