Frequently Asked Questions
Employee Reimbursement Account (ERA) Program
What is the Employee Reimbursement Account
Program?
The Employee Reimbursement Account (ERA) Program is an optional
benefit authorized under Section 125 of the Internal Revenue Code
and Wis. Stats. §40.85-40.875. A Section 125 plan, also known
as a "cafeteria plan", allows employee's health and life
insurance premiums and deposits to reimbursement accounts (also
known as "flexible spending accounts") to be made with
pre-tax dollars.
Who is eligible to enroll?
Most full-time or part-time classified and unclassified state and
university employees are eligible to participate. Employees who
are classified as fellows, scholars, and research assistants in
the University of Wisconsin System, limited term employees (LTE’s),
student hourlies, per diems and other temporary employees may not
participate.
What benefits are included in the Wisconsin
ERA Program?
The ERA program includes:
Medical Expense Reimbursement Account
The medical expense reimbursement account is for health care expenses
incurred by you and/or your tax dependents that are not covered
by insurance, such as deductibles, co-pays, co-insurance amounts
and non-covered items, such as eyeglasses, dental expenses, and
certan categories of over-the-counter drugs and supplies. Employees
may contribute up to $7,500 per year. The minimum contribution is
$100 per year.
Dependent Care Reimbursement Account
The Dependent Care Reimbursement Account is for qualifying dependent
day care expenses that are incurred so that you and your spouse,
if married, can work actively look for work, or so that your spouse
can attend school full-time. The maximum amount of contribution
allowed is $5,000 per plan year per family (or $2,500 per employee
if married filing taxes separately.) If the spouse is a full-time
student or incapable of self-care, contributions are limited to
$3,000/year for one child or $6,000/year for two or more children.
Annual contributions cannot total more than either spouse's annual
income.
Automatic Premium Conversion
Automatic premium conversion is a component of a Section 125 plan
where employee contributions toward State group health, life, EPIC,
Vision Service Plan (VSP) and DentalBlue insurance plans are deducted
on a pre-tax basis. The employees do not pay federal or state income
tax or FICA taxes on their share of the premiums. As the name implies,
participation is automatic.
Can I waive participation in automatic
premium conversion?
Employees may waive participation in premium conversion by submitting
an ERA Automatic Premium
Conversion Waiver/Revocation of Waiver
(ET-2340). Newly hired employees may file it at the time of
hire to be effective immediately. Employees who wish to change the
way their contributions are treated may file an ET-2340 at any time
to waive conversion or rescind a waiver, but it will be effective
only at the beginning of the next plan year.
Are there any restrictions for premium conversation participation?
Internal Revenue Code regulations governing premium conversion
restrict changes that can be made to your benefits during the plan
year. You may not make changes or cancel your participation in any
of the benefits for which premiums are being taken on a pre-tax
basis unless your decision to do so is a result of a qualifying
change in status event. Keep in mind that the benefit plan may also
have other restrictions on allowable changes during the plan year,
in addition to those required under premium conversion
NOTE: If you have insurance coverage that includes a domestic partner
or other individual who cannot be claimed as a dependent on your
income tax returns, the fair market value (FMV) of benefits covering
such an individual will be calculated and added to your earnings
as taxable income.
Can I use the Employee Reimbursement Account program to
pay the qualifying medical expenses of my domestic partner, his/her
dependents or my adult child?
No, federal tax regulations do not allow the use of flexible benefit
plans to pay for medical expenses on a pre-tax basis unless the
domestic partner, partner’s child, or your adult child qualifies
under the Internal Revenue Code as a tax dependent at the time the
expense was incurred.
How can I determine if my domestic partner or adult child
qualifies under the Internal Revenue Code as my tax dependent?
Consult the guidelines in IRS Publication 501 for “qualifying
relative.” In general, the IRS requires that a qualifying
relative meet four tests:
- The dependent does not meet the “qualifying child”
tests;
- The dependent must live with you all year as a member of your
household;
- The dependent’s gross income must be less than $3,500
for the year;
- You must provide more than half of the dependent’s support
for the year.
The lists above should not be used as the sole determination of
your dependent’s tax status. These tests are described in
detail in IRS Publication 501, which is available at the Internet
Web site of the Internal Revenue Service.
Can I use the Employee Reimbursement Account program to
pay for the dependent care of my domestic partner’s dependent
child?
No, federal tax regulations do not allow the use of flexible benefit
plans to pay for dependent care of a domestic partner’s child
on a pre-tax basis unless the child qualifies under the Internal
Revenue Code as the employee’s tax dependent at the time the
care expense was incurred.
Can insurance premiums be reimbursed
through a medical expense reimbursement account?
No. Insurance premiums, including premiums for long-term care benefits,
may not be reimbursed through the medical expense reimbursement
account.
When can employees enroll in the ERA
program?
An open enrollment period is held in October-November of each year
to give employees the opportunity to enroll for the next plan year.
Newly-hired and newly-eligible employees must enroll within 30 days
of their hire or eligibility date.
NOTE: There is no requirement that an employee participate in the
WRS for 6 months prior to enrolling in the ERA.
What are the election requirements under
Section 125?
Participant elections for medical expense and dependent care reimbursement
accounts must be made before the beginning of each plan year, or
for newly-hired or newly-eligible employees, before their period
of coverage begins. Once the plan year (or period of coverage) begins
the benefit election cannot be cancelled or changed unless the participant
experiences a valid Change In Status event.
When does coverage start?
Coverage begins on January 1st for employees who enrolled during
the annual open enrollment period. For newly hired or newly eligible
employees who enroll mid-year, coverage begins on the first day
of the month that begins on or after the date the enrollment form
is received by the employer.
When does coverage end?
Coverage ends on December 31st of each plan year; however, there
is a "grace period" through March 15 during which expenses
may be incurred and reimbursed using the previous year's contributions.
For an employee who terminates employment or goes on an unpaid leave
of absence before the end of the plan year and does not take action
to pay their full annual election amount, coverage ends at the end
of the month in which the last deduction was taken.
What is the "use it or lose it"
rule?
IRS regulations require that any amount left in your account at
the end of a plan year (including the grace period) after all submitted
reimbursement requests have been processed will be forfeited to
the State of Wisconsin. Excess contributions cannot be returned
to you.
What is the "Grace Period"?
The IRS now permits a "grace period" of two months and
15 days following the end of the plan year during which medical
and dependent care expense account contributions from one plan year
may be used for eligible medical and dependent care expenses incurred
through March 15th of the following year.
What is the deadline for submitting
reimbursement requests?
The deadline (or "run-out period") for submitting both
medical and dependent care claims for expenses incurred during the
previous plan year, including the grace period, is April 15.
What happens to an employee's dependent
care reimbursement account when employment is terminated?
An employee can not continue to make contributions to their dependent
care account after termination of employment. However, an employee
can continue to request reimbursement for eligible expenses until
the account balance is exhausted, or the plan year ends, even if
the full annual amount has not been contributed prior to termination.
What happens to an employee's medical
expense reimbursement account when employment is terminated?
An employee who terminates employment mid-year is entitled to continue
participation in the medical expense reimbursement account for the
remainder of the plan year. The employee may increase pre-tax salary
reductions prior to termination in order to complete annual contributions
before termination.
If the employee does not pay their full annual amount prior to
termination, he or she will be given a Continuation of ERA Medical
Expense Account Coverage form (ET-1518) to elect to pay out-of-pocket
contributions up to the total annual election amount on a post-tax
basis.
The right to elect to continue coverage ends 60 days from the date
the continuation notice is provided by employer to the employee.
Continuation coverage will extend coverage through the end of the
current plan year, including the grace period. Coverage may terminate
earlier if the premiums are not paid when due. If continuation coverage
is waived, the unused portion of the account is forfeited after
all claims incurred prior to termination have been submitted.
What are valid Change in Status events?
Benefit elections for reimbursement accounts may not be changed
during the plan year unless the employee has experienced a "change
in status" event as described in IRS regulations. The change
in status event must result in the employee, spouse or dependent
gaining or losing eligibility for coverage. Any proposed change
in election must be on account of, and correspond with a change
in status event that affects the coverage eligibility of the employee
or their spouse or dependent. The change in status events as authorized
by the IRS include:
- Change in employee's legal marital status, including marriage,
death of spouse, divorce, legal separation or annulment.
- Change in number of dependents including birth, adoption, placement
for adoption or death of a dependent.
- Change in employment status of the employee, spouse or dependent,
including: termination or commencement of employment; a strike
or lockout; commencement or return from an unpaid leave of absence;
change in work schedule, including an increase or decrease in
the number of hours of employment; a switch between full-time
and part-time status, and a change in work site.
- An event that causes an employee's dependent to satisfy or cease
to satisfy the requirements for coverage due to attainment of
age, student status or any similar circumstances.
In addition to the Change in Status events listed above, the following
events can support an election change for dependent care accounts,
but not medical expense accounts:
- Change in residence of the employee, spouse or dependent that
necessitates a change in dependent care arrangements.
- Open Enrollment Under Other Employer's Plan. An employee is
permitted to change their dependent care election when a family
member makes an open enrollment change under his or her employer's
plan if that plan has a different plan year from the cafeteria
plan of their spouse's employer.
- Coverage Changes and Dependent Care. If your dependent care
provider increases or decreases costs, or if a cost change results
when one dependent care provider is replaced with another, the
contribution amount may be increased or decreased. However, if
the dependent care provider is a "relative" by blood
or marriage and he or she increases costs during the plan year,
an election change cannot be made to reflect the cost of that
increase.
The following events may support an election change for medical
expense accounts, but not dependent care accounts.
- Certain Judgements, Decrees or Orders. If a judgment, decree
or order from a divorce, legal separation, annulment, or change
in legal custody requires that the employee provide accident or
health coverage for their dependent child (including a foster
child who is a dependent), the employee may change their medical
expense account to provide coverage for the dependent child. If
the order requires that another individual (including spouse and
former spouse) cover the dependent child and provide coverage
under that individual's plan, the employee may change their medical
expense account election to revoke coverage for the dependent
child.
- Medicare and Medicaid. If an employee or their spouse or dependent,
who is enrolled in the medical expense reimbursement account,
becomes entitled to Medicare or Medicaid, he or she may prospectively
reduce or cancel their medical expense account election with respect
to the expenses of the person becoming entitled to Medicare or
Medicaid. Further, if an employee or their spouse or dependent,
who has been entitled to Medicare or Medicaid, loses eligibility
for such coverage, the employee may prospectively elect to commence
or increase medical expense reimbursement account coverage of
the person losing Medicare or Medicaid coverage.
How can an employee enroll or change
an annual election amount if a Change In Status event occurs?
The employee must complete a Change in Status form and file it
within 30 days after the Change in Status event. If there
are any questions about the eligibility of a Change in Status event
or completing the form, the employee may contact FBMC's Madison
Office at (608) 829-0435 or baye@fbmc.com.
Questions regarding the number of paychecks remaining in the plan
year and the payroll cutoff date to get the deduction on the next
payroll may be directed to the employee's payroll/benefits office.
The employee must send the completed form to the Madison FBMC office
(7818 Big Sky Drive, Suite 210A, Madison, WI 53719) for approval
and processing. If the change is approved by FBMC, the employer
and employee will be notified. The effective date of the
change will be the first of the month that begins on or after the
date that the change in status form is received and approved by
FBMC.
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