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FLEXIBLE SPENDINGACCOUNTS FSA’s TAX TREATMENT OF CONTRIBUTIONS Pre-tax contributions are not subject to tax under IRC § 125. Reimbursements o f medical care and expenses of an employee and the employee’s spouse and dependents are generally excludable from the employee’s gross income under IRC §§ 105 and 106. Prop. Treas. Reg. § 1.125, Q & A 7. CATCH UP CONTRIBUTIONS Not Applicable. COORDINATION OF CONTRIBUTION LIMITS WITH RESPECT TO OTHER ACCOUNTS OR ARRANGEMENTS None. NON-DISCRIMINATION RULES An FSA is subject to the nondiscrimination rules under the IRC § 125 cafeteria plan provisions and also under IRC § 105(h) for self-insured arrangements. The nondiscrimination rules of IRC § 105(h) prohibit discrimination in favor of highly compensated employees with respect to eligibility to participate and benefits. PERMISSIBLE ACCOUNT BENEFITS Reimbursement of qualified medical expenses (as defined in 213(d) of the IRC) (including OTC drugs) pertaining to the account holder, spouse, or any qualifying dependents. Qualified medical expenses do not include expenses pertaining to (1) health insurance premiums; and (2) long-term care services. IRC § 106(c). An FSA may not permit the participant to cash out credits or use credits for other benefits. COORDINATION WITH OTHER ACCOUNTS OR ARRANGEMENTS An FSA may be coordinated with an HRA, subject to certain rules, e.g., mutually exclusive coverage, layering of coverage (FSA first). If coverage is provided under both an HRA and an FSA for the same medical care expense, amounts available under an HRA must be exhausted before reimbursements may be made from the FSA. Notice 2002-45, Sec. V, 2002-28 IRB 93. | ||
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