Section 125

We offer full IRS Section 125 administration. Our administration of flexible spending accounts is consistent with federal guidelines as documented by Section 125 of the Internal Revenue Code. There are two types of Flexible Spending Accounts (FSA):

Dependent Care Assistance Plan (DCAP)

This voluntary plan allows an employee to make a pre-tax contribution directly from his/her paycheck that is set aside into a personal account. The expenses must be for dependent care expenses (i.e., day care or elder care).

Medical Reimbursement Account (MRA)

This voluntary plan allows an employee to make a pre-tax contribution directly from his/her paycheck that is set aside into a personal account. The expenses must be for unreimbursed medical expenses (e.g., deductibles, co-payments, expenses not reimbursed by your health plan).

Administration Services of Section 125

  • Plan set-up assistance
  • Employee communication and enrollment
  • Government forms for employer IRS filing
  • Plan document preparation
  • Guaranteed 48-hour claim processing
  • Record keeping
  • Complete reporting
  • Annual open enrollment meetings

For current customers enrolled in a Section 125 Plan, you can view your account information online by clicking here.

Frequently Asked Questions about Section 125/Flexible Spending Accounts

What is a Section 125 Plan?

Section 125 is a provision of the Internal Revenue Code that allows employees to pay their share of the cost of certain group insurance benefits, unreimbursed medical expenses, and dependent care expenses with pre-tax dollars. Under this provision, your paycheck is reduced by the amount you elect for the year. That money is removed from your salary structure before Federal Income, State Income, and Social Security taxes are calculated, and placed in a separate account. This results in lower taxable income, and higher take-home pay.

What pre-tax accounts are available to me?

We typically offer two accounts:

  • Dependent Care Reimbursement Account
  • Medical Reimbursement Account

What is the Dependent Care Reimbursement Account?

The Dependent Care Reimbursement Account allows you to pay for your childcare or disabled adult care expenses while you are working, with tax-free dollars.

What is a Medical Reimbursement Account?

Under this provision, you elect an annual amount to be taken out of each paycheck, pre-tax. These funds are available to reimburse you for out-of-pocket medical, dental, and vision expenses, such as deductibles and co-payments.

Are there any limits to the amount I can set aside for reimbursement?

Every plan is different. Your employer sets the limits on your plan. The maximum and minimum amounts you can elect are outlined in your Plan Information Summary. For Dependent Care Reimbursement accounts, the law allows you to elect up to $5,000 a year for single, or married taxpayers filing jointly, and $2,500 for married taxpayers filing separately.

How do I enroll and use the Medical Reimbursement Account?

Determine how much you expect to pay annually for medical expenses that are not covered by your insurance plan. These expenses could be insurance co-payments, deductibles, prescriptions, eyeglasses and exams, chiropractic treatments, dental work, orthodontics, lab fees and special education for a learning disabled child. Fill in that amount on the form to be taken out of your paycheck over the year. When you incur an eligible expense, use your pre-funded debit card or just mail or fax a receipt for the expense, along with a voucher to UAS, and we will send you a reimbursement check for that amount.

What if I don’t incur enough expenses within the year to get back the money deposited in my reimbursement account?

Unfortunately any dollars not used for expenses are forfeited. This is what is known as the “use it or lose it” provision of Section 125. It is very important to be conservative and accurate in estimating your expenses for the plan year.

Who is considered an eligible dependent for Dependent Care?

Your IRS dependent(s) under the age of 13, or any IRS dependent who is physically not able to care for himself is considered to be a qualified dependent.

Can I use the Dependent Care Account if I pay a family member for childcare?

Yes, but they must be reporting that income on their tax return. If that family member is your own child under the age of 19, you may not claim those expenses.

Can I take a tax credit for reimbursed dependent care or medical expenses on my income tax return if I am in this Plan?

No. Expenses reimbursed under this plan may not be used when calculating your medical expense deduction or the dependent care tax credit. Because, for a few individuals, it is sometimes more advantageous to take the dependent care tax credit on your tax return than to participate in the dependent care reimbursement account, you should discuss which alternative is the best for you with your tax advisor.

Do I have to file any forms with the IRS?

Yes. You must file form 2441, Child and Dependent Care Expenses, when you file your form 1040 with the IRS.