Module 6

An employer cannot include a 401(k) plan in a Sec. 125 cafeteria plan.

False, Sec. 125 allows a 401(k) plan to be included in a Cafeteria Plan, but 403(b) or 457(b) plans cannot be included

How are §125 plan benefits reported?

Nontaxable §125 plan benefits are not reported on Forms W-2 or 941.

What is an FSA's uniform coverage?

To meet the FSA's uniform coverage rule, an employer must reimburse an employee for eligible expenses up to the employee's election even though the employee's contributions have yet to be made.

What terms can describe a §125 plan?

What terms can describe a §125 plan?

What is a cafeteria plan?

A cafeteria plan meeting IRC §125 requirements allows employers to select a menu of generally nontaxable benefits offered to employees.

Dependent care FSA special rules:

A dependent care FSA is not subject to the uniform coverage rule. An employer will only reimburse expenses up to the amount of the employee's contributions to date.

What does a §125 plan not allow?

A §125 plan does not allow the deferral of compensation from one plan year to another plan year. An exception to this disallowance is when a 401(k) plan is part of the §125 plan.

Medical FSA contribution limits:

An employee's Medical FSA salary reduction contributions cannot exceed $2,650 in a plan year.

What's FSA's use-it-or-lose-it rule?

An employee's reimbursement for contributions to an FSA during the plan year must be eligible, substantiated expenses during the plan year. Contributions that are not substantiated are lost.

All of the following qualified benefits can be offered under a Sec. 125 plan EXCEPT

IRC Section 125 allows cafeteria plans the ability to provide nontaxable benefits, such as medical flexible spending accounts, additional vacation days, and contributions to 401(k) plans. In most cases, benefits that are excluded from income under other IRC provisions, such as qualified transportation fringe benefits, cannot be provided in a Section 125 Cafeteria Plan.

How much can two employees married to one another and working for the same employer contribute to an employer's medical FSA?

If an employee and spouse work for the same employer, both employees are each allowed the annual contribution limit ($2,650 in 2018) to a medical flexible spending account.

How are §125 benefits taxed?

Qualified benefits provided through a §125 plan, including benefits purchased through a Flexible Spending Arrangement or in a premium-only plan, are not taxable. Benefits taken in cash are taxable.

For a dependent care FSA, an employee has elected to defer $2,500 for the plan year. Within six months, the employee has incurred $2,700 in qualified expenses. What occurs?

The employer may only reimburse the employee up to the amount they have contributed

An employee has contributed $300.00 YTD into a medical flexible spending account. In November, the employee was terminated with $100.00 remaining in the account after all qualified reimbursements had been made. When must the employer reimburse the employee's $100.00?

When additional qualified medical expenses are submitted Section 125 medical Flexible Spending Account rules allow a distribution of unused contributions after an employee's termination to reimburse eligible expenses incurred prior to the employee's termination.

Under a Sec. 125 plan, all of the following benefits are qualified benefits EXCEPT:

deferred compensation to a 457(b) plan. IRC Section 125 allows cafeteria plans the ability to provide nontaxable benefits, such as medical coverage, additional vacation days, long-term disability, dependent care assistance, and contributions to 401(k) plans. In most cases, benefits that are excluded from income under other IRC provisions, such as employee discounts and contributions to 457(b) plans cannot be provided in a Section 125 Cafeteria Plan.

All the following benefits can be offered in an IRC §125 plan EXCEPT:

educational assistance. Qualified benefits permitted in an IRC §125 plan include accident and health plans, group-term life insurance, health savings accounts (HSA), elective vacation days, elective contributions to a qualified cash or deferred arrangement (401(k) only), cash, and adoption assistance. Educational assistance plans are not permitted in an IRC §125 plan.

Under FSA rules, the uniform coverage provision only applies to a(an):

health care plan In a health flexible spending account, the uniform coverage rule requires the maximum amount of reimbursement selected by the participating employee (that is, the total of the employee's payments for the plan year) must be available to the employee at all times during the plan year.

Under FSA rules, the uniform coverage provision only applies to a(an):

health care plan.

What do §125 plans allow?

§125 cafeteria plans give employers the ability to provide selected nontaxable or taxable benefits to employees allowing them the ability to choose the benefits they desire.

When can §125 plan benefits change?

§125 plan benefits may be changed by employees before the beginning of the plan year, when there is an IRS-approved status change or a cost or coverage change.