FPC Chapter 3.5

In a medical flexible spending account, an employee has elected to defer $1,000.00 for additional medical expenses during the plan year. Early in the plan year the employee incurs $1,500.00 in medical expenses. What occurs? A. The employer reimburses the employee $1,000.00 tax free. B. The employer reimburses the employee $1,500.00 tax free. C. The employee can carry over the $500.00 excess to the next plan year without amending the plan. D. The employee can retroactively change the election to have an additional $500.00 deferred during the year.

A. The employer reimburses the employee $1,000.00 tax free. ***The maximum amount of reimbursement selected by a participating employee must be available to the employee at all times during the plan year. The amount available is reduced each time the employee submits a claim for reimbursement. It does not matter how much the employee has paid into the FSA when the claim is made, and the premium payment schedule cannot be accelerated because of the employee's claims or because the employee separates from employment.***

An employee uses cafeteria plan benefits of $350.00 per month to pay for chosen benefits. The $350.00 represents: A. nontaxable compensation if not chosen as a cash benefit. B. taxable compensation for all federal taxes. C. taxable compensation for social security and Medicare taxes only. D. taxable compensation for federal income tax only.

A. nontaxable compensation if not chosen as a cash benefit.

Which of the following statements is true regarding Sec. 125 plans? A. At the end of the plan year, employees receive cash payments for remaining unreimbursed amounts. B. Employer contributions taken as cash represent taxable compensation. C. Benefits in the plan must include group-term life insurance, medical/dental coverage, employee discounts, and scholarship grants. D. Any benefits received in cash are not taxed.

B. Employer contributions taken as cash represent taxable compensation.

An employer contributes $350.00 per month to each employee's Sec. 125 plan for medical benefits. An employee, who has other medical coverage, chooses to receive the monthly contribution in cash. What are the implications to the employee for receiving the cash? A. The $350.00 is a tax-free benefit. B. The $350.00 is taxable income when received. C. Only social security tax and Medicare tax are withheld from the amount. D. The employee cannot make this choice under federal regulations.

B. The $350.00 is taxable income when received.

An employee has elected to have $200.00 per month contributed to a medical flexible spending account. At the end of the plan year's grace period, $100.00 remains in the account. What happens to the $100.00? A. The amount can be received in cash without taxation. B. The amount is forfeited by the employee. C. The amount becomes taxable income. D. The amount can be carried over to the next plan year without amending the plan.

B. The amount is forfeited by the employee

An employee has elected to have $200.00 per month contributed to a dependent care flexible spending account. At the end of the plan's grace period, $100.00 remains unused in the account. What happens to the $100.00? A. The amount can be received in cash without taxation. B. The amount is forfeited. C. The amount becomes taxable income. D. The amount can be carried over to the next plan year.

B. The amount is forfeited.

Which of the following statements is true regarding Sec. 125 plans? A. Any benefits received in cash are not taxable. B. The benefit options must include both cash and qualified nontaxable benefits. C. At the end of the plan year, employees receive cash payments for remaining unreimbursed amounts. D. Benefits in the plan must include group-term life insurance, medical/dental coverage, employee discounts, and scholarship grants.

B. The benefit options must include both cash and qualified nontaxable benefits. ***In general, a cafeteria plan, as defined in Section 125 of the Internal Revenue Code, is a plan in which all participants are employees who choose from a minimum of two or more benefits that consist of cash and qualified benefits.***

All of the following qualified benefits can be offered under a Sec. 125 plan EXCEPT: A. dependent care. B. deferred compensation to a 457(b) plan. C. medical coverage. D. deferred compensation to a 401(k) plan.

B. deferred compensation to a 457(b) plan.

A company's cafeteria plan provides each employee with $200.00 per month to pay for chosen benefits. After selecting benefits, one employee has $50.00 per month left and requests payment of $50.00 per month. This $50.00 is: A. nontaxable compensation. B. taxable compensation for all federal taxes. C. taxable compensation for social security and Medicare only. D. taxable compensation for federal income tax only.

B. taxable compensation for all federal taxes.

An employee has elected to have $200.00 per month contributed to a medical flexible spending account. At the end of the plan year's grace period, $100.00 remains in the account. What happens to the $100.00? A. The amount can be carried over to the next plan year without amending the plan. B. The amount can be received in cash without taxation. C. The employer can use the amount to offset any administrative expenses in connection with the program. D. The amount becomes taxable income.

C. The employer can use the amount to offset any administrative expenses in connection with the program.

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? A. With the final paycheck B. Within 30 days after termination C. When additional qualified medical expenses are submitted D. By January 31 along with Form W-2

C. When additional qualified medical expenses are submitted

Under a Sec. 125 plan, all of the following benefits are qualified benefits EXCEPT: A. additional vacation days. B. medical coverage. C. deferred compensation to a 457(b) plan. D. long-term disability insurance.

C. deferred compensation to a 457(b) plan

Under a Sec. 125 plan, all of the following benefits are qualified benefits EXCEPT: A. medical coverage. B. medical flexible spending account. C. scholarship and fellowship grants. D. additional vacation days.

C. scholarship and fellowship grants.

A company contributes $350.00 each month to a qualified Sec. 125 plan for medical insurance. In addition, $100.00 is contributed to a dependent care flexible spending account. How are these amounts taxed? A. Only $100.00 is fully taxable B. Only $350.00 is fully taxable C. $450.00 is subject only to social security and Medicare taxation D. $450.00 is not taxable income

D. $450.00 is not taxable income

An employee had $300.00 deducted for a medical flexible spending account during the plan year. In November, the employee was terminated and $100.00 remained in the account. When must the employer reimburse the $100.00 to the employee? A. With the employee's final paycheck B. Within 30 days after termination C. No later than December 31 of the current year D. When $100.00 of qualified expenses are substantiated

D. When $100.00 of qualified expenses are substantiated

Qualified expenses under a Health Flexible Spending Arrangement incurred for over-the-counter medicine or drugs (except insulin) require: A. health plan approval. B. employer approval. C. a receipt. D. a prescription.

D. a prescription. ***The definition of eligible medical expenses changed on January 1, 2011, limiting over-the-counter medicine to prescribed medicines. Prescribed over-the-counter medicines are eligible expenses when the prescription is submitted as part of the reimbursement request.***

Under a Sec. 125 plan, all of the following benefits are qualified benefits EXCEPT: A. long-term disability insurance. B. medical coverage. C. additional vacation days. D. employee discounts.

D. employee discounts.