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October 11, 2002

Half of ISU employees 'flex' their pre-tax dollars

by Debra Gibson
Here's your chance to settle in with "The Flex Files." The ISU benefit known as Flex (for flexible spending accounts) allows employees to build tax-free spending accounts to cover out-of-pocket health care and dependent care expenses. By pulling these funds out of paychecks before taxes, employees can pocket more cash. While administered for ISU employees by the university, the Flex program actually is governed by the Internal Revenue Service (Section 125 of the Internal Revenue Code).

Nearly half the ISU workforce (48 percent) takes advantage of health care reimbursement accounts, with an average annual contribution of just under $1,000, according to Diane Muncrief, human resources manager. About 7.5 percent of ISU employees participate in the dependent care spending accounts, with an individual average annual contribution of $3,400. By estimating what they will spend in a calendar year on non-covered medical and dental expenses and/or care for children and elderly parents, individual faculty and staff members save hundreds, and perhaps thousands, of dollars each year.

Still, many university employees avoid the Flex program, either because it doesn't make sense to them or because they fear they will lose, rather than save, money. Following are "The Flex Files," a guide to everything you need to know about this tax-saving benefit.

Why is the Flex program considered a benefit?
Because it allows you to save money. Funds to pay these non-covered medical, dental and dependent care expenses are pulled from your paycheck before taxes. Consequently, your withholdings for federal and state income tax and Social Security tax are lower. For example:
    Larry's annual salary: $30,000, two exemptions
    Flex plan: $50/month for health care; $400/month for dependent care
    Take-home pay with Flex: $1,563.76
    Take-home pay without Flex: $1,884.94
    Difference in take-home pay: $321.18 (for $450 in expenses)
    Real savings: $128.82/month or $1,545.84/year

Or check out Paula's situation:
    Annual salary: $48,000, no exemptions
    Flex plan: $100/month for health care
    Take-home pay with Flex: $2,576.07
    Take-home pay without Flex: $2,635.28
    Difference in take-home pay: $59.21 (for $100 in expenses)
    Real savings: $40.79/month or $489.48/year

How does this program work?
First, estimate what your medical, dental and dependent care expenses will be for next year. These medical/dental costs might cover areas such as co-pays for clinic visits, orthodontia, prescriptions, eyeglasses, contact lenses and their maintenance products, and dental procedures. Dependent care expenses could include monthly fees to day care centers or sitters, tuition for preschools, boarding schools or summer day camps. (For a complete listing of eligible expenses, go to http://www.hrs.iastate.edu/benefits/PandS_Spending_Account.shtml.)

Once you've determined those expenses, divide that total by 12 (or 9, if you are a 9-month employee). This will be the amount deducted from each paycheck, pre-tax.


How do I get my money back?
The Flex program operates on a calendar-year basis, so for next year, only expenses incurred during 2003 will be considered for reimbursement. (However, you have up to 90 days after a calendar year ends to request reimbursement for the previous year's expenses.)

Let's say you purchase new eyeglasses on Jan. 15. Using a reimbursement form available from the Benefits Office, Room 100, Wallace Road Office Building or the ISU Web site at http://www.hrs.iastate.edu/benefits/homepage.shtml, you submit the form, along with a copy of your receipt, to Wellmark Blue Cross/Blue Shield, which handles ISU's Flex program. A calendar of filing deadlines and reimbursement dates also is located on the aforementioned Web site. Within a few days following the filing deadline, you will receive a reimbursement check.

If you subscribe to the Wellmark health insurance plans, you don't even have to fill out a reimbursement form for many medical expenses. By enrolling in the automatic reimbursement program, those out-of-pocket costs owed your physician, hospital or pharmacy will be forwarded directly for payment. (Forms still need to be submitted, though, for items like eyeglasses, contacts, braces, etc.) Wellmark health insurance sub-scribers also can enroll in a direct deposit program that automatically banks their reimbursement checks for them.


How can I get reimbursed for a $300 pair of eyeglasses in January when I've just begun contributing money to my spending account?
Each January, your health care spending account balance shows the total annual amount you have determined. With the appropriate receipts, you will be reimbursed until that account is depleted, regardless of how much you have paid into it to date. Your paycheck will be debited at the same rate each month for the entire calendar year.

However, dependent care accounts are administered differently. Those balances reflect only what has been contributed to date, and reimbursements are approved up to those balances.


Can I change the contributions to my spending account during the year?
Only if there has been a change in family status (marriage, divorce, birth, adoption, death or employment change for employee or spouse, e.g. loss of job, or from full time to part time). And the modification needs to be in correspondence with the life change. For instance, adding a child to the family would allow monthly contributions to increase to a medical spending account, but not decrease.


What happens if I resign during the course of the year, and I've already withdrawn all my Flex funds? Do I have to reimburse the university the difference?
No, according to IRS regulations. The university will absorb that loss, Muncrief said, as "part of the risk of administering the plan."


What if I overestimated my out-of-pocket expenses and still have money in my account at the end of the year?
You lose, and the university gains. Balances cannot be carried over into the next calendar year. About 3 to 5 percent of Flex participants default on their accounts each year, according to Muncrief; those leftover funds are used to help pay administrative costs associated with the program.


My spouse and I both are employed at ISU. Can we both make claims on these expenses?
No, only one spouse may enroll in the Flex program, but costs can be reimbursed for all members of an immediate family, not just the employee(s). Also, if a second insurance carrier already has paid expenses, they cannot be reimbursed by Flex funds.


Can I deduct these same medical or dependent care expenses on my income taxes?
No. Every dollar you contribute to the dependent care spending account (whether reimbursed or forfeited) reduces your dependent tax credit by $1. Likewise, medical funds cannot be deducted if already reimbursed or forfeited.


How much can I "Flex" each year?
Health care and dependent care accounts each have maximum total contributions of $5,000 annually. Likewise, each account must have a minimum total contribution of $240, or $20 per month.


How do I sign up for next year?
As long as you are employed by ISU at least one-third time, and work at least nine months per year, you are eligible for this benefit. Enrollment dates are Nov. 4 through Dec. 6. Contact the Benefits Office, 4-7680, for more information.





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