1. CALIFORNIA PAYROLL CONFERENCE Topics: FSA/HSA, Fringe Benefits

2. Agenda Overview Topic Content FSA/HSA Difference in the type of plans
Who can participate
When they can choose to participate
When is too late to participate
Relevant annual limits
Payroll’s role in participation
Employee’s role in participation
FSA
Permissible benefits payable
Administration rules
Year End – excess amounts: Rollover v. Refund
HSA
Year end – excess amounts: Rollover v. Refund
1040 Presentation (non-payroll)
Federal v. State Taxation
Fringe Benefits
Popular nontaxable
Popular taxable
Audit activity in this area for all of these (Federal & State)

3. FSA/HSA

4. HSA Required to Participate High Deductible Health Plan
No Other Health Insurance
Not Enrolled in Medicare
Not a Dependent on Someone’s Tax Return
Any amount of Income…
…or no Earned income at all is OK

5. >2% owners of an S Corp
FSA
Who Can Participate/Who Cannot?
Employees
Sole Proprietors
>2% owners of an S Corp
Members of an LLC

6. HSA
Jan 1, Year 1
Apr 15, Year 2
When can you make contributions for [Year 1]?

7. Election made before Plan Year Contributions made on pay period basis
FSA
Election made before Plan Year
Contributions made on pay period basis
When can you make contributions for [Year 1]?

8. $2600 FSA HSA $6750 $3400 family FSA/HSA
individual
$6750
family
HSA
Relevant Indexed annual limits

9. Differences in the type of plans
FSA/HSA
Differences in the type of plans
FSA
5. Not portable between employers
4. No significant eligibility hurdles.
3. Cannot change election during the year.
1. Use or Lose
2. Employer owns funds.
6. No cash out opportunity.
HSA
5. Is Portable between employers.
4. Requires HDHP to be eligible.
3. Can change election during the year.
1. Rolls over Each year.
2. Employee owns funds.
6. Cash out available, but may incur penalty tax regime.

10. HSA
State Taxation
California
Alabama
New Jersey

11. Employee’s role in participation
FSA/HSA
Employee’s role in participation
FSA:
Elect the $500 Carryover feature on your Medical FSA.
Will be able to roll over up to $500 of your unused funds to the next year plan.
May receive a debit card that can be used for medical bills and other eligible expenses under IRS guidelines.
The debit card can be used for qualified services and items, as the full amount of the employee’s annual contribution is available as soon as the plan begins.
HSA:
Can be made by a salary reduction arrangement through a cafeteria plan (125 plan)
Elections to make contributions through a cafeteria plan can change on a month-by-month basis.
Contributions to the HSA are pre-tax and not subject to individual or employment taxes.
Above the line deduction.
Individual decides:
Whether he or she should contribute.
How much to use for medical expenses.
Which medical expenses to pay from the account.
Whether to pay for medical expenses from the account or save the account for future use.
Which company will hold the account.

12. FSA

13. FSA Permissible Benefits Deductibles Prescriptions
Copayments
Prescriptions
Insulin
Non-Prescription Medicine that is Prescribed
…for you, spouse, dependent, child under 27 at end of tax year
Premiums, Long Term Care, Amounts Covered Under Another Health Plan

14. FSA Administration Rules
Uniform Premium: The full amount of the Election is available on the First Day of the Plan Year

15. Year End Dilemma (Excess Funds)
FSA
Year End Dilemma (Excess Funds)
Grace Period
Carryover
Premium Holiday?
Grace Period Option: An employee has 2 ½ months after the end of the plan year to incur eligible expenses. OR
Carryover Option: Can carryover $500 of unused funds to the following plan year.
Where Companies accumulate residual funds, consider giving everyone a premium holiday from a benefit to spend down the balance. Do not return in proportion to an employee’s unused balance.

16. HSA

17. HSA Qualified Medical Expenses
213(d) medical care that is not covered by insurance
Copayments
Prescriptions
Insulin
Non-Prescription Medicine that is Prescribed
…for you, spouse, dependent, child under 27 at end of tax year
Premiums, Long Term Care, Amounts Covered Under Another Health Plan

18. HSA Administration Rules
Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year.
If you meet these requirements, you are eligible individual even if your spouse has non-HDHP family coverage, provided your spouse’s coverage doesn’t cover you.
If another taxpayer is entitled to claim an exemption for you, you can’t claim a deduction for an HSA contribution.
Each spouse who is an eligible individual who wants an HSA must open a separate HSA.
You can’t have a joint HSA.

19. Year End - excess amounts: Rollover v. Refund
HSA
Year End - excess amounts: Rollover v. Refund
Excess contributions are not deductible.
Generally, you must pay a 6% excise tax on excess contributions.
You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn if you meet the following conditions.
1.) You withdraw the excess contributions by the due dates, including extensions, of your tax return for the year the contributions were made.
2.) You withdraw any income earned on the withdrawn contributions and include the earnings in “Other Income” on your tax return for the year you withdraw the contributions earnings.
A roll over contribution isn’t included in your income, isn’t deductible, and doesn’t reduce your contribution limit.
You can roll over amounts from Archer MSA’s and other HSA’s into an HSA.
You must roll over the amount within 60 days after the date of receipt.
You can only make one roll over contribution to an HSA during a 1-year period.

20. 1040 Presentation (non-payroll)
HSA
1040 Presentation (non-payroll)
When you file you will need to include Form 8889 to report all contributions and withdrawals associated with your HSA.
The form has a line for reporting your direct contributions to your HSA.
You will carry that deduction to line 25 on your form 1040.
Form 1099-SA from your HSA administrator reporting withdrawals from the account.
Report those distributions on Form 8889 and indicate which were for eligible medical expenses and which were not.

21. Year End Reporting

22. HSA
Year End Reporting

23. HSA
Year End Reporting

24. HSA
Year end Reporting: Employee

25. HSA
Year End Reporting (Employee)

26. Fringe Benefits

27. Fringe Benefits The following are Taxable Gift Cards Spousal Travel
Employer-Subsidized Meals
Spousal Travel
Commuting Expenses (Remote Workers)
Gifts
Wellness Program Benefits (Cash)

28. Fringe Benefits The following may be Taxable
Employee Discounts
Fitness Facility Memberships
Moving Expense Reimbursements
Achievement Awards
Tuition Assistance (Exec MBA)

29. Audit activity in this area for all of these (Federal & State)

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