Questions and Answers
What qualifies someone as unable to care for themselves?
When can changes to a health plan typically be made?
Which of the following is NOT considered a qualified life event change?
What is the nature of IRS limits for Dependent Care Accounts?
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What is a High Deductible Health Plan (HDHP) often used with?
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What is required for an employee's employment status change to qualify as a change in status?
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Why are some individuals considered unable to care for themselves?
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Which scenario allows for a change in the health plan outside of open enrollment?
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What type of plans do Health Reimbursement Accounts (HRAs) represent?
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Which characteristic accurately describes HRAs regarding employee taxation?
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What advantage do employers gain from contributing to HRAs?
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How can unused balances in an HRA be treated at the end of the year?
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How do employers usually fund HRAs?
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What is a strategic benefit of coupling an HRA with a high-deductible health plan?
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What is a key feature of Flexible Spending Accounts (FSAs)?
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Which type of Flexible Spending Account is specifically for dependent care expenses?
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FSAs are exempt from which of the following taxes?
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What does the 'use-or-lose' rule refer to in the context of FSAs?
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Which of the following expenses can be paid using an FSA?
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Under which condition must dependent care expenses qualify for FSA reimbursement?
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What happens to the benefits for highly compensated employees in an FSA if the plan favors them?
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Which of the following statements is true regarding FSAs?
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Who determines the eligibility and contribution limits for Health Reimbursement Arrangements (HRAs)?
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What happens to unused HRA benefits at the end of the year?
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Which of the following statements about former employees and HRAs is true?
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What is a key feature of HRAs regarding contribution limits?
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What is the primary purpose of balancing the purchasing power of larger and smaller employers in HRAs?
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What is the primary function of a Health Savings Account (HSA)?
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Which of the following is a requirement to be eligible for a Health Savings Account?
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What are the current contribution limits for Health Savings Accounts for families in 2023?
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What penalty applies to nonhealth withdrawals from an HSA before age 65?
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Which statement is true regarding contributions made by an employer to an HSA?
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At what age can an HSA holder withdraw funds for nonhealth purposes without facing a penalty?
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What is the contribution limit for an HSA holder aged 55 and older?
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What qualifies as a nonhealth expenditure from an HSA?
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Study Notes
Flexible Spending Accounts (FSAs)
- FSAs allow salary reduction contributions from employees, supplemented by employer contributions.
- Employees can use FSAs for eligible health care and dependent care expenses.
- FSAs have annual maximum contributions and operate under a "use-or-lose" rule; unused funds do not carry over to the next year.
- Two types of FSAs:
- Health Care Account for out-of-pocket health expenses.
- Dependent Care Account for dependent-related expenses; subject to annual contribution limits.
- FSA contributions are exempt from federal income taxes, Social Security taxes, and often state taxes, potentially saving 1/3 in taxes.
- FSA benefits for highly compensated employees may not be exempt from federal income taxes.
- Eligible expenses include medical, dental, child care for dependents under 13, and care for spouses or dependents incapable of self-care.
- Changes to the health plan can be made during open enrollment or due to qualified life events like marital status changes or employment status impacts.
IRS Limits for Dependent Care Accounts
- Family limit imposed on annual contributions, which is adjusted annually for inflation.
- Even if both parents have accounts, combined contributions cannot exceed the set limit.
High Deductible Health Plans (HDHPs) and Related Accounts
- HDHPs often paired with MSAs, HSAs, or HRAs to manage medical expenses.
Health Savings Accounts (HSAs)
- HSAs help save for qualified health expenses incurred by individuals, spouses, or dependents.
- Only individuals covered by HDHPs can contribute to HSAs.
- Current contribution limits are $3,850 for singles and $7,750 for families; additional contributions allowed for those aged 55 and older.
- Nonhealth withdrawals before age 65 incur a 20% penalty; after age 65, they are taxed but not penalized.
Health Reimbursement Accounts (HRAs)
- HRAs are employer-funded accounts to reimburse employees for qualified medical expenses like deductibles or coinsurance.
- Contributions to HRAs are tax-deductible for employers and not taxable for employees.
- Unused balances can roll over to the following year; no statutory contribution limit exists, but employers set maximums.
- Former employees may retain access to unused funds at the employer's discretion, but HRAs do not transfer with employees leaving for new jobs.
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Description
Explore the concept of Flexible Spending Accounts (FSAs), where employees can allocate pre-tax funds for health and dependent care expenses. Learn about the benefits, contribution limits, and the annual 'use-or-lose' rule associated with this type of account.