Flexible Spending Accounts
Made possible by Section 125 of the Internal Revenue Code and subject to IRS regulations, and offered at USC through WageWorks, FSAs can protect up to $7550 a year per employee from any federal, state, or Social Security tax.
If you’re a Verdugo Hills employee, your Flexible Spending Account is administered by a different third party provider.
How FSAs work
- You choose an amount – up to $2600 a year for healthcare expenses ($2650 in 2018) and/or up to $5000 a year in dependent care expenses.
- Calculate expenses carefully – you can only carry over $500 from your healthcare account to the next year (and those funds are not available until April 15 of the next year). Any unused amount above $500 in your healthcare account, or any amount remaining in your dependent care account, will be forfeited.
- The amount you select is then deducted from your paycheck in equal increments over the full 12-month calendar year (except for faculty who opt to receive their base pay over a shorter cycle).
- Enrollment is via Workday; enroll for your FSA within 30 days of hire date, and every year thereafter during open enrollment (you must re-enroll each year), or when you have a life event status change.
- If you begin an account mid-year due to enrollment as a new hire or a status change, eligible claims must be for services rendered after the effective enrollment date.
- Because the amount you set aside in your FSA is not taxed for Social Security purposes, your future benefit from Social Security may be reduced slightly.
Health care FSAs
Healthcare accounts are for expenses incurred by you or your eligible dependents (as defined by the IRS) and include:
- Medical and dental plan deductibles
- Some over-the-counter medicines if prescribed
- Other health care expenses not covered by your insurance (most expenses that the IRS considers tax deductible are eligible, but not all)
Expenses that are NOT eligible
- Medical and dental insurance premiums
- Expenses associated with cosmetic surgery
- Expenses incurred for ineligible dependents or others not in your family
When you can use the money
The full amount you have selected is available for qualifying expenses from January 1-December 31 of the year in question (but you have until March 31 of the following year to submit the previous year’s claims). Up to $500 of your healthcare FSA can be carried over to the following year – but it’s important to note that you cannot access that carryover amount until April 15 of the following year. An example to explain this – let’s say you:
- Opted for the full $2600 healthcare FSA in 2017
- Also had $500 carried over from 2016
In that situation, on January 1, 2017, you could access the $2600 in 2017 funds, but not the additional $500, which would become available on April 15, 2017. If at that time you had not yet incurred any 2017 expenses, your funds available would now be $3100 instead of $2600.
Although you can access all of the present year’s funds at the beginning of the year (and the carryover balance on April 15), note that if you leave USC employment during the year, any services provided after your termination date will not qualify, even if you have funds remaining in your FSA (unless you elect COBRA continuation coverage on an after-tax basis – for more information see Leaving USC).
Options to access the money
- Use WageWorks’ online “Pay My Provider” system
- Use the WageWorks debit card; be sure to keep your receipts
- Use WageWorks’ online “Pay Me Back” system
- Pay with personal funds and provide receipts for traditional claims reimbursement
- Purchase eligible products and services through the FSA Store
- Submit a claim by fax/mail, online or via the mobile app
See the Wageworks website for more information.
Dependent care FSAs
If you pay for dependent care so you can work, a dependent care FSA may save you money.
- Children under age 13
- Dependent (child, spouse, parent, grandparent, brother, sister, etc.) who is unable to care for him/herself because of a disability and spends at least 8 hours a day in your home
- Before/after school care
Expenses that are NOT eligible
- Educational programs
- Sleepover camps
Other eligibility information
If you are married, both spouses must work in order to qualify, and the amount set aside cannot exceed your earned income or your spouse’s earned income, whichever is less.
You also qualify if your spouse is a full-time student, or physically or mentally disabled – under these circumstances, you generally may set aside up to $200 a month for one dependent and up to $400 a month for two or more dependents.
Please note: Each year FSA plans must pass a non-discrimination test to show they do not favor highly compensated employees regarding eligibility, contributions and benefits. If USC’s plans do not pass the test, USC may reduce your election(s) during the year if you are a highly compensated employee as defined by the Internal Revenue Code. Benefits will notify you if it becomes necessary to reduce your contributions.
When you can use the money
Unlike the health care FSA, money is not paid in advance – your dependent care expenses are only reimbursed up to the current balance in your account. However, if you leave USC employment, expenses incurred in the previous year can be submitted following your termination date subject to the filing requirements below.
The IRS requires you to provide a receipt that includes the name, address, and taxpayer identification number of the person or organization providing your daycare services. Be aware that your W2 tax form will reflect the amount set aside in your dependent care FSA. Also, the money you set aside in a dependent care FSA will reduce – dollar for dollar – the maximum amount of expense you can apply toward the federal dependent care credit on your income tax return. Consult your tax advisor.
Dependent care services must be rendered by December 31 of the calendar year in order to qualify-there is no grace period as with the health care FSAs.
WageWorks | www.wageworks.com