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CORPORATE
1495 Alan Wood Road
Suite 4
Conshohocken, PA 19428
610.940.9420
Fax 610.940.1130
14757 Main Street Suite 106
Upper Marlboro, MD 20772
301.952.0046
Fax 301.952.0048
Markets Served
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IRS Section 125 allows participants to convert a taxable benefit (salary) into nontaxable benefits. Utilizing a Section 125 plan, you may elect to pay for eligible unreimbursed Health Care expenses (such as deductibles, over the counter Rx and co-payments) on a tax-free basis.
THE RESULT
Employees pay lower payroll taxes and consequently have more spendable income.
For most employees, FSA are the only way to gain a tax break for medical expenses. With medical expenses deductible on income tax returns only to the extent they exceed 7.5 percent of adjusted gross income, relatively few people are ever able to qualify for the itemized medical deduction.
Switch expenses to "pre-tax" and Save.
TAX SAVINGS EXAMPLE |
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| 28% Federal Tax and 6% State Tax |
Without Spending Account |
With Spending Account |
| Monthly Salary |
$3,000.00 |
$3,000.00 |
| Pre-tax FSA contribution |
$0.00 |
$500.00 |
| Taxable Salary |
$3,000.00 |
$2,500.00 |
| Federal Income tax & FICA |
$1249.50 |
$1041.25 |
| Take-home pay |
$1750.50 |
$1458.75 |
| After-tax expenses |
$500.00 |
$0.00 |
| Net take-home pay |
$1250.00 |
$1458.75 |
| Increase in monthly spendable income |
N/A |
$208.75 |
| Increase in annual spendable income |
N/A |
$2505.00 |
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Qualified Health Care Expenses
The Department of the Treasury Publication 502 provides a complete list of eligible (tax-deductible) expenses
that you can consider for your Medical Flexible Spending Account.
Following is an abbreviated list that illustrates the general categories and some specific deductions: |
- Co-Pays
- Contact Lenses
- Hypnosis
- Acupuncture
- Hearing Aids
- Analysis
- Artificial Limbs
- Eyeglasses
- Deductibles
- Wheelchairs
- Physical Therapy
- Birth Control Pills
- Laboratory Fees
- Lifetime Care
- Abortion
- Ambulance
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- Vaccinations
- Telephone/Television for the Deaf
- Car Controls
- Syringes
- Guide Dog
- Transplants
- Chiropractor
- Health Care Equipment
- Crutches
- Eye Surgery
- Sterilization
- Drug Addiction
- Psychiatric
- Alcoholism
- Dental Fees
- and more...
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OVER-THE-COUNTER DRUGS CAN NOW BE REIMBURSED BY FSA!
In the biggest news for FSA in years, the IRS has just announced that over-the-counter drugs can be reimbursed by FSA (and HRA). Departing from its prior position. the IRS now states that "reimbursements by an employer of amounts paid by an employee for medicines and drugs purchased by the employee without a physician's prescription are excludable from gross income" under code section 105(b). The Ruling concludes that FSA was authorized to reimburse an employee for purchases of an antacid, allergy medicine, a pain reliever and cold medicine from a pharmacy, non of which were purchased with a physician's prescription.
Rev.Rul 2003-102 (September3, 2003)
A Medical Flexible Spending Account (Med FSA) is an inexpensive employee benefit which allows the employee to set aside NON-TAXED earnings to pay for eligible out of pocket health care expenses, again TAX FREE.
The employee chooses an annual amount to put into their Med FSA account before taxes are withheld. These funds will be deducted equally from each paycheck. Each time a non-insured qualified medical expense is incurred, the employee submits a Reimbursement Request Voucher along with copies of the charges. On the Friday after the request is posted, the medical reimbursement is deposited directly into the employee's designated bank account.
IT'S JUST THAT SIMPLE
Example: If an employee in the 28% tax bracket chooses to use $1,200 through their Med FSA, not only will they save 28% federal income tax, but also save the 7.65% FICA and most state income tax. Use of this account will result in the employee saving $428 plus any states' income tax. An employee in the lower 15% tax bracket will save $272 plus most states' income tax.
If the employee chooses not to use the Med FSA account, the savings they would have had goes to taxes.
Employees benefit by:
- budgeting out of pocket medical costs over the entire year
- paying medical costs with what otherwise would be tax dollars
- receiving prompt reimbursement directly to their bank account
- paying for non-insured items, deductibles and co-pays with earnings that are not taxed
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