Your Cafeteria Plan Your Cafeteria Plan BenefitBenefit

Cal State San Marcos Cal State San Marcos FoundationFoundation

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What is a Cafeteria Plan?What is a Cafeteria Plan?

Cafeteria Plans allow employees to Cafeteria Plans allow employees to pay for company health insurance pay for company health insurance premiums, health care costs and premiums, health care costs and dependent care costs with pre-tax dependent care costs with pre-tax dollarsdollars

Without a Cafeteria Plan, you Without a Cafeteria Plan, you receive your paycheck first, then receive your paycheck first, then after Federal, State and FICA taxes after Federal, State and FICA taxes are deducted, you pay for those are deducted, you pay for those expensesexpenses

How do I benefit?How do I benefit?

Using a Cafeteria Plan, you are Using a Cafeteria Plan, you are issued a paycheck from which your issued a paycheck from which your insurance premiums, health care insurance premiums, health care costs and dependent care costs are costs and dependent care costs are deducted before Federal, State and deducted before Federal, State and FICA taxesFICA taxes

This results in a lower gross amount This results in a lower gross amount of your income subject to taxesof your income subject to taxes

Advantages?Advantages?

Under the Plan, you may elect to Under the Plan, you may elect to receive benefits on a tax free basis. receive benefits on a tax free basis. The amount you pay, or spend for The amount you pay, or spend for group insurance premiums, “out of group insurance premiums, “out of pocket” medical expenses, as well pocket” medical expenses, as well as child or dependent care as child or dependent care expenses, is deducted from your pay expenses, is deducted from your pay prior to the calculation of payroll prior to the calculation of payroll taxes (Federal, State & FICA)taxes (Federal, State & FICA)

This will in turn increase your net This will in turn increase your net spendable incomespendable income

What does the Foundation’s What does the Foundation’s Cafeteria plan offer?Cafeteria plan offer?

Premium Only Plan (POP)Premium Only Plan (POP) Allows you to elect to have your Allows you to elect to have your

insurance premiums deducted pre-taxinsurance premiums deducted pre-tax Reimbursement AccountsReimbursement Accounts

Allows you to set aside pre-tax dollars Allows you to set aside pre-tax dollars each pay period to pay for Health and each pay period to pay for Health and Dependent Care expensesDependent Care expenses

Consists of two accounts:Consists of two accounts:1.1. Health Care Flexible Spending Account Health Care Flexible Spending Account

(HFSA)(HFSA)

2.2. Dependent Care Flexible Spending Dependent Care Flexible Spending Account (DFSA)Account (DFSA)

Premium Only PlanPremium Only Plan

If you pay a portion of the monthly If you pay a portion of the monthly premiums for your medical premiums for your medical insurance, a cafeteria plan allows insurance, a cafeteria plan allows you to pay for those premiums with you to pay for those premiums with pre-tax dollarspre-tax dollars

Must elect this option on an annual Must elect this option on an annual basisbasis

If you pay no premiums monthly, no If you pay no premiums monthly, no need to elect this plan optionneed to elect this plan option

Complete a Salary Reduction Complete a Salary Reduction Agreement Agreement

Flexible Spending AccountsFlexible Spending Accounts

Health Care Flexible Spending Health Care Flexible Spending Account Account Normal plan year is January 1st to Normal plan year is January 1st to

December 31st each yearDecember 31st each year Complete the Flexible Spending Complete the Flexible Spending

Account Enrollment Form Account Enrollment Form Annual Maximum: $2,500Annual Maximum: $2,500 Monthly Minimum: $25Monthly Minimum: $25

Health Care Flexible Spending Health Care Flexible Spending AccountAccount Amounts you spend for “out of pocket” Amounts you spend for “out of pocket”

health care costs fall into this planhealth care costs fall into this plan Costs not covered by your other employee Costs not covered by your other employee

benefits (examples include medical, dental, benefits (examples include medical, dental, vision insurances, and prescriptions)vision insurances, and prescriptions)

Expenses must be incurred during the plan Expenses must be incurred during the plan year or by the end of the “grace period” year or by the end of the “grace period” (i.e., by March 15(i.e., by March 15thth of the following year) of the following year)

““Use it or lose it” program appliesUse it or lose it” program applies For specifics, consult a tax specialist, a For specifics, consult a tax specialist, a

CPA, or refer to IRS Publication 502CPA, or refer to IRS Publication 502

What types of Health Care What types of Health Care Expenses can I pay for?Expenses can I pay for? Co-paysCo-pays Insurance Insurance

PremiumsPremiums DeductiblesDeductibles Dental CareDental Care Vision CareVision Care OrthodontiaOrthodontia ImmunizationsImmunizations

ChiropractorChiropractor AmbulanceAmbulance Contact LensesContact Lenses PediatricianPediatrician PsychiatristPsychiatrist PrescriptionsPrescriptions Lab WorkLab Work Many, Many Many, Many

More…More…

Flexible Spending AccountsFlexible Spending Accounts

Dependent Care Flexible Dependent Care Flexible Spending AccountSpending Account Normal plan year is January 1st to Normal plan year is January 1st to

December 31st each yearDecember 31st each year Complete the Flexible Spending Complete the Flexible Spending

Account Enrollment FormAccount Enrollment Form Annual Maximum: $5,000Annual Maximum: $5,000 Monthly Minimum: $25Monthly Minimum: $25

How does the Dependent How does the Dependent Care Account Work?Care Account Work? You may pay for dependent care expenses for You may pay for dependent care expenses for

qualifying children and/or dependents incapable of qualifying children and/or dependents incapable of self care. Expenses must be incurred to allow you self care. Expenses must be incurred to allow you and your spouse, if married, to work or attend and your spouse, if married, to work or attend school school

Child care expenses are allowable for children Child care expenses are allowable for children under the age of 13. Costs for preschool are under the age of 13. Costs for preschool are generally allowable generally allowable

The care can be provided within or outside your The care can be provided within or outside your home, but, services may not be provided by one of home, but, services may not be provided by one of your dependentsyour dependents

Services provided by a licensed day care provider Services provided by a licensed day care provider must follow requirements for the State in which the must follow requirements for the State in which the provider is locatedprovider is located

Expenses must be incurred during the plan year or by the Expenses must be incurred during the plan year or by the end of the “grace period” (i.e., by March 15end of the “grace period” (i.e., by March 15thth of the of the following year)following year)

““Use it or lose it” program appliesUse it or lose it” program applies

Dependent Care ContinuedDependent Care Continued

Allowed pre-tax up to $5,000 per Allowed pre-tax up to $5,000 per calendar year if married filing calendar year if married filing joint return or single filing single joint return or single filing single returnreturn

Pre-taxing the expenses Pre-taxing the expenses precludes you from taking the precludes you from taking the credit when filing your taxescredit when filing your taxes

What is my potential savings?What is my potential savings?The tax savings will depend on the employee deferral directed to the Cafeteria Plan and the employee’s tax rate.

Without Cafeteria Plan

With Cafeteria Plan

Gross Monthly Compensation $3,000.00 $3,000.00

Less Pre-Tax Expenses

Group Medical Insurance Premiums $0.00 $75.00

Medical Costs $0.00 $25.00

Dependent Care Costs $0.00 $225.00

Compensation Subject to Taxes $3,000.00 $2,675.00

Less Taxes and After Tax Expenses

Federal Income Tax (15%) $450.00 $401.25

State Income Tax (4%) $120.00 $107.00

Social Security Tax (7.65%) $229.50 $204.64

Insurance Premiums/Medical/Day Care $325.00 $0.00

Net Pay $1,875.50 $1,962.11

Increase in Income Per Month $0.00 $86.61

Increase in Income Per Year $1,040

Bottom Line!Bottom Line!

You can either continue to pay You can either continue to pay for your expenses with earnings for your expenses with earnings after Uncle Sam has taken his after Uncle Sam has taken his chunk…or you can pay those chunk…or you can pay those

same expenses with a portion of same expenses with a portion of your pay before taxes are your pay before taxes are withheld! It is up to you to withheld! It is up to you to

decide!decide!

Frequently Asked Frequently Asked Questions???Questions???

This sounds too good to be This sounds too good to be true…is it?true…is it?

Even though the benefits may Even though the benefits may seem too good to be true, Federal seem too good to be true, Federal legislation passed in 1984 formally legislation passed in 1984 formally recognized and adopted Cafeteria recognized and adopted Cafeteria Plans, which are regulated under Plans, which are regulated under various sections of the Internal various sections of the Internal Revenue CodeRevenue Code

See the IRS website at See the IRS website at www.irs.govwww.irs.gov for further information for further information on Cafeteria Planson Cafeteria Plans

Are reimbursements taxable?Are reimbursements taxable?

Reimbursements for qualified Reimbursements for qualified expenses are not taxable. expenses are not taxable. Under Code Section 125, these Under Code Section 125, these pre-tax expenses are not pre-tax expenses are not declared or reported for income declared or reported for income tax purposes, which means they tax purposes, which means they are not taxable now or when are not taxable now or when filing your taxes!filing your taxes!

Will this affect my other Will this affect my other benefits?benefits?

Participation in the Plan will not Participation in the Plan will not affect any other benefits you affect any other benefits you may receive, or your ability to may receive, or your ability to participate in qualified plans (i.e. participate in qualified plans (i.e. retirement plans, etc…)retirement plans, etc…)

What does the phrase “use it What does the phrase “use it or lose it” mean?or lose it” mean? The plan is a “use it or lose it” The plan is a “use it or lose it”

benefit, so a conservative approach benefit, so a conservative approach when estimating your pre-tax when estimating your pre-tax expenses should be used. You will expenses should be used. You will have 30 days after the “grace period” have 30 days after the “grace period” (i.e., 30 days after March 15(i.e., 30 days after March 15 thth = until = until April 14April 14thth) to claim any ) to claim any reimbursements for the previous reimbursements for the previous plan year. Any expenses not plan year. Any expenses not claimed will be forfeited. In other claimed will be forfeited. In other words, “use it or lose it!”words, “use it or lose it!”

What happens if I change What happens if I change employers?employers?

The plan provides an extended The plan provides an extended period of time for you to submit period of time for you to submit claims for reimbursement to the claims for reimbursement to the administratoradministrator

Do I have to pay for expenses Do I have to pay for expenses before I am reimbursed?before I am reimbursed?

No. Expenses are reimbursed No. Expenses are reimbursed as they are incurred. It is not as they are incurred. It is not necessary that they be paid first necessary that they be paid first (Incurred means the date the (Incurred means the date the service was provided/received service was provided/received at the doctors, dentist – not the at the doctors, dentist – not the date billed or paid)date billed or paid)

What name is on the What name is on the reimbursement check?reimbursement check?

It is payable to you! The check It is payable to you! The check reimburses you/your family for reimburses you/your family for expenses you’ve incurredexpenses you’ve incurred

How do I know what my How do I know what my balance is?balance is?

If you do not claim If you do not claim reimbursements you will receive reimbursements you will receive your account statement at the your account statement at the end of the third quarter of each end of the third quarter of each plan year, otherwise you will plan year, otherwise you will receive statement information receive statement information with each reimbursement checkwith each reimbursement check

Can I change my pre-tax Can I change my pre-tax amounts?amounts?

The plan allows for The plan allows for increases/decreases in election increases/decreases in election amounts in the event of a amounts in the event of a qualified job or family status qualified job or family status change. A qualified change change. A qualified change may include: marriage, divorce, may include: marriage, divorce, adoption, birth of a family adoption, birth of a family member, or a significant change member, or a significant change in employment status of spousein employment status of spouse

May I claim expenses for my May I claim expenses for my family?family?

Yes! The plan allows you to Yes! The plan allows you to receive reimbursement for receive reimbursement for expenses incurred on you, your expenses incurred on you, your spouse, and all eligible spouse, and all eligible dependentsdependents

What if I have other What if I have other questions?questions?

Call Flex Pensions at (562) 308-Call Flex Pensions at (562) 308-24942494

Or call Foundation Human Or call Foundation Human Resources at: (760) 750-4700Resources at: (760) 750-4700

How do I sign up for the plan?How do I sign up for the plan?

See the following documents:See the following documents: InstructionsInstructions for Flexible Spending for Flexible Spending

Accounts Accounts Complete the Complete the Salary Reduction Salary Reduction

and Enrollment Formand Enrollment Form

Plan for your future…Plan for your future…

During the benefit open During the benefit open enrollment periods you have enrollment periods you have

options and decisions to make. options and decisions to make. Take the time to review all the Take the time to review all the

available options you have. Use available options you have. Use your tax advantages wisely and your tax advantages wisely and choose the best alternatives for choose the best alternatives for

you and your family…you and your family…

The EndThe End