What is a flexible benefit plan?
A flexible benefit plan (commonly called flexible spending account) is regulated by Internal Revenue Code (IRC) Section 125; also known as a cafeteria plan. This allows you to reduce your salary and pay on a pre-tax basis for unreimbursed health care expenses (such as deductibles, co-payments, dental and vision expenses) and/or dependent care expenses (such as care of a child, elderly parent or disabled spouse).
• Authorized by Internal Revenue Code Section 125, Cafeteria Plans, also called reimbursement accounts, flexible benefit plans or Flexible Spending Accounts (FSAs), provide a tax-advantaged way to pay certain out-of-pocket health care expenses and work-related dependent care expenses. The plans allow you to pay your expenses with “pre-tax” dollars, which means that you get a tax deduction for those expenses before you ever file your tax return. You don’t pay Federal income or Social Security taxes on this money and, in most states; you don’t pay state taxes either. Most employer plans include two options: Part 1 – FSA – Health You can set aside money on a pretax basis to pay for qualifying out-of-pocket health care, dental, vision or hearing expenses that are not covered under your existing insurance plans. Part 2 – FSA – Dependent Day Care You can set aside money on a pretax basis to pay for qualifying work-related child or adult daycare expenses.
