An additional benefit that can be included with a Section 125 Cafeteria Plan, a Flexible Spending Account (FSA) allows employees to set aside money on a pre-tax basis to pay for eligible health care expenses. The employer saves 7.65% in matching FICA taxes for every dollar contributed by employees! The FICA savings helps to offset any cost to the employer for offering the plan. This allows employers to offer an expanded benefit package, which helps to attract and retain employees, without significantly increasing their healthcare costs.

In 2013, the Affordable Care Act (ACA) made revisions to FSA guidelines that state an Employer must offer a qualified group medical plan in order to offer an FSA for its employees that reimburses medical expenses. In order to offer an FSA, an Employer must also offer a group medical plan that meets ACA standards for excepted benefits.

Health FSA Account

Under a Health FSA Account, employees are reimbursed for eligible health care expenses that are not covered or reimbursed under the employer’s health plan. Employees set aside an election amount up to an annual maximum determined by the employer. This election is deducted from the employee’s paycheck on a pre-tax basis, resulting in tremendous tax savings to the employee (average tax savings for participants is 25-40%!) The contribution limit for employees is set by the employer, up to a maximum cap indexed annually by the IRS.

Find More FSA Resources

Employee

Employer