Core Documents Produces a New Product Video: How To Set Up Dependent Care Assistance Plan FSA

Core Documents, the nations leading provider of affordable plan documents for tax-free employee benefits has produced a new 7 minute video titled:  How To Set Up a Dependent Care Assistance Plan FSA.

Dependent Care Assistance Plan FSA Transcript:

Thank you for visiting us at Core Documents. Since 1997, we’ve been the nation’s primary source for affordable Section 125, Health FSA, HRA, wrap SPD and Dependent Care Assistance Plan FSA plan documents.

Core Documents provides employers with everything required to establish a compliant Dependent Care Assistance Plan FSA formal plan document for just $169 in PDF electronic version.

The I.R.S. Section 129 Dependent Care Flexible Spending Account, or Dependent Care FSA, plan document package allows employees to be reimbursed for up to $5,000 annually on a pre-tax basis for dependent care expenses for a qualifying dependent, such as a child under the age of 13, a disabled spouse, or a dependent incapable of caring for him or herself.

The dependent must meet the IRS definition of dependent for income tax purposes. Employees can include expenses paid to a babysitter, daycare center, summer camp, or before and after school care, as long as the services are necessary in order for the employee and their spouse, if married, to work, look for work, or attend school full time. An employee decides how much of their salary should be set aside each month, and this amount is automatically deducted from their paycheck before taxes are calculated.

Just like any other payroll deduction, the money stays in the employer’s general operating account until a reimbursement is made to the employee. An employer does not need to set up a separate account for the dependent FSA funds. It is generally accepted that a trust account is not necessary if separate accounting is maintained within the company’s general operating account.

The funds that have been set aside for an employee’s dependent FSA account may not be used for any other purpose. An employee may not use their dependent FSA account funds to be reimbursed for health care expenses or insurance premiums. Dependent FSAs limit the annual maximum allotment by law to $5,000 per year or $2,500 if married, filing a separate return.

If an employee is currently receiving a child care subsidy, they must ensure that the total amount they elect through the FSA combined with the total amount of the child care subsidy they receive does not exceed the $5,000 limit. If married, the $5,000 limit must be observed by the employee and their spouse where both individuals have access to an FSA and or a child care subsidy. A dependent FSA can be used in conjunction with other Section 125 plans, such as a POP plan, and can be used for any size group, even a group with only one employee.

A dependent FSA plan pays for itself by decreasing the amount of income taxes paid by an employee and by reducing the employer’s matching payroll taxes. Employees can save up to 30% in federal income taxes alone, depending on their tax bracket, and the employer saves approximately 8% by reducing their matching Medicare and Social Security taxes. Depending on an employee’s particular tax situation, it may be more advantageous for the employee to use the tax credit rather than the dependent care FSA exclusion.

There is a dependent care tax credit worksheet on our website that can help determine which option is best. The employee should consult a tax professional if they are unsure of which option is more beneficial for them.

A dependent care FSA plan can be set up to begin at any time during the year. A 12-month plan year must be selected, but an employer may choose a short plan year for the first year. For example, an employer who selects a plan year of January 1st to December 31st but begins the plan on April 1^st and will have a short plan year of April 1 to December 31st for the first year. The years following will be for a full 12-month period.

Some employers align their plan year with the plan year of their other cafeteria plans, others choose their tax year. If you already have a Section 129 dependent FSA plan in place, you can amend and restate the plan at any time. If your plan document is more than 5 years old, it needs to be updated as soon as possible due to numerous changes in the tax code.

You may be making administrative decisions using outdated information. If you have misplaced your plan documents, you can purchase an updated or amended plan document. Simply provide us with the original effective date of your existing plan in order to maintain continuity.

Dependent FSA plans have a use-it-or-lose-it feature, so employees should be conservative when deciding how much to set aside each year for their dependent care reimbursements. Amounts left over at the end of the year will revert back to the employer to help offset the cost of administering the plan. These funds cannot be given back to the employee.

You do not need a plan administrator to administer your dependent FSA plan. Many employers administer their own plans. If you prefer to outsource administration, Core Documents offers you a state-of-the-art web-based administration service complete with a debit card for each employee. Simply click on the Online Administration tab at the top of any web page and learn about our web-based administration services.

Core Documents provides you with a custom FSA plan document prepared specifically from the information you provide in the application. You will receive a single-user license for the plan document or combination of plan documents of your choice. Each plan document package consists of a personalized binder with a resolution to adopt the plan, the IRS-required signature-ready plan documents, the summary plan description, election forms, claim forms, and change forms, plus a complete administrative guide. For an additional fee, you can purchase a CD with a summary plan description in PDF format and the forms in MS Word format.

You do not have to file a copy of the plan document with any governmental entity. Annual IRS Form 5500 filing was suspended in 2002 for most plans, including dependent FSA plans.

You will distribute a copy of the summary plan description to every eligible employee and a copy of the election forms.

Every employee should complete a new election form designating their specific deductions each year. These forms should remain on file in the event of an audit or review.

To order, simply click on the Order Online button. If you prefer, you can use our fax or email PDF order form. Consultants are standing by to assist you Monday through Friday from 9 a.m. to 5 p.m. Eastern Time. Please don’t hesitate to call us if you have questions.

Thank you for visiting us at Core Documents.