Introduction | The accounts | Eligible health care expenses | Eligible dependent care expenses | How the plan works | The pretax advantage | Plan carefully | Submitting claims

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Introduction

If you are among the many LSU employees who have out of pocket medical care and/or child care expenses, this plan is for you. La Sierra University is pleased to offer its employees a plan whereby you can pay for these expenses in a tax-favorable way through a plan called Flexible Spending Accounts. The tax saving features of these plans enable you to pay eligible expenses with dollars that are not subject to federal, state and Social Security (FICA) taxes. The result?

* A lower tax bill.
* More purchasing power for health care and child care expenses

The accounts

The plans consist of a Health Care Account and a Dependent Care Account. Both accounts are completely voluntary and function independently. You can not use money from your Health Care Account to pay dependent care expenses. Similarly, you can not use money from your Dependent Care Account to pay health care expenses.

Eligible health care expenses

The Health Care Account enables you to be reimbursed with pre-tax dollars on expenses not completely covered by your medical or dental plans -- including deductibles and co-pays. Some common uses for this account:

* physical examinations
* eye examinations, glasses, contact lenses, and corrective eye surgery
* lab tests and other medical diagnostic procedures
* orthodontia above dental plan limits
* hearing exams and hearing aids
* surgery
* medical expenses not covered by another insurance source
* prescription drugs or insulin
* many other medical expenses

This account can also be used to reimburse you in pretax dollars for the health-related expenses of your dependents, as long as you can claim them as a dependent on your tax return, even if they are not covered under your medical or dental plans. Please ask for a more complete list of the expenses you can pay with this account.

Eligible dependent care expenses

The Dependent Care Account is a tax-favorable way to pay child care expenses that enable you and your spouse, if you are married, to work outside the home. Eligible expenses include the cost of a day care center, a baby-sitter, or a nurse in your home to enable you to work or attend school full time. If you hire a baby-sitter to enjoy leisure activities, the expense would not be eligible for reimbursement through the Dependent Care Account. Other rules that apply to this account are described in a separate brochure.

How the plan works

The Flexible Spending Accounts work much like a checking account but with a pretax advantage. Each year, you decide how much to deposit in your Health Care Account and/or Dependent Care Account for the following calendar year. You draw on your account throughout the year to pay expenses that qualify under the plan.

The money you elect to deposit is automatically deducted from your paycheck in equal amounts each pay period, before federal, state, and Social Security taxes are calculated. Because of this pretax advantage, the dollars you use for eligible expenses buy more and you lower your taxable income at the same time.

The pretax advantage

Because you are lowering your taxable income with the money you set aside in the flexible spending account, you will be paying less taxes during the year. Let’s say you decide to put aside $200 into the medical savings account. Each person will be saving 7.65% in Social Security taxes. This comes to $15.30. Depending on which tax bracket you find yourself in when you file your 1040 form at the end of the year, you will be saving either 15% or 28% in Federal taxes. This will come to either a $30.00 or a $56.00 savings. State taxes are harder to determine a savings on, but it would be any where from 3% to 9.3%. This amounts to tax savings in the range of $6.00 to 18.60. When you add up these numbers, you could see a overall tax savings of $51.30 all the way up to $89.90 on the $200.00 you set aside.

Plan carefully

An important point to remember is that if you do not use the entire amounts you set aside for eligible expenses, the Internal Revenue Service (IRS) requires that the unused amounts be forfeited.

Unused account balances cannot be carried forward to the next plan year or returned in cash. Therefore, you must estimate your annual expenses carefully. The amount of money you deposit in each account should not exceed the amount of health care or dependent care expenses you are certain you will incur.

Forfeitures do not necessarily mean great financial losses, however. Even if you forfeit some money at the end of the year, you may still be ahead as a result of the tax savings. If you prefer not to risk forfeiting any funds, review your expenses from the previous year, plan carefully, and be conservative in your estimates.

Submitting claims

You may file a claim at any time during the plan year for eligible expenses incurred during that year. Keep in mind that an expense is incurred when the service is provided, not when you are billed or when you pay for it. You may continue to file claims for eligible expenses after the plan year has ended. You have until September 30 of the following year to do so. To file a claim, you must have a copy of the medical bill, and a copy of the Risk Management benefits statement showing the portion you owe.

If you leave LSU for any reason, your deposits to the Flexible Spending Accounts will stop. You may continue to submit claims for expenses incurred during the plan year (even after your termination) up to the amount you had in your account when your employment ended. You may not submit expenses incurred beyond the plan year in which your employment ended.

Dependent Care reimbursement is limited to your account balance at the time you submit a claim.

Health Care reimbursement is limited to your total yearly election amount (which may be more than your current health care balance) at the time you submit a claim. After you claim reimbursement, regular FSA payroll deductions will continue through the year to repay the advance health care reimbursement.