Frequently Asked Questions
Employee Reimbursement Accounts (ERA) Program
ERA Program Details
What is the Employee Reimbursement Accounts
The Employee Reimbursement Accounts (ERA) Program is an optional benefit authorized under Section 125 of the Internal Revenue Code and Wis. Stats. ß40.85-40.875. A Section 125 plan, also known as a cafeteria plan, allows an 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. The flexible spending accounts include the Health Care Flexible Spending Account (FSA), Limited Purpose Health Care Flexible Spending Account (LPFSA), and Dependent Day Care Account (DCA).
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, limited term employees (LTEs), student hourlies, per diems and other temporary employees may not participate.
What benefits are included in the Employee
Reimbursement Accounts Program?
The ERA program includes:
Health Care Flexible Spending Account (FSA)
The FSA 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 limited categories of over-the-counter drugs and supplies. Effective January 1, 2015, the maximum contribution per employee is $2,550 per year.
Limited Health Care Flexible Spending Account (LPFSA)
The LPFSA is similar to a standard Health Care FSA but is designed to work in conjunction with a Health Savings Account (HSA). The difference with the LPFSA is that youíre only eligible to claim eligible dental, vision, and post-deductible expenses. Effective January 1, 2015, the maximum contribution per employee is $2,550 per year.
Dependent Day Care Reimbursement Account (DCA)
The DCA 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 $5,000/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
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 conversion 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. Coverage for adult children up to age 26 is not taxable, regardless of their dependent status.
Can I use the Health Care Flexible Spending Account (FSA) to pay the qualifying medical expenses of my domestic partner, his/her dependents or my adult child?
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 or partner’s child qualifies under the Internal Revenue Code as a tax dependent at the time the expense was incurred.
Expenses for non-tax-dependent adult children up to age 26 may be reimbursed through a medical expense account.
How do I determine if my domestic
partner qualifies under the Internal Revenue Code as my tax dependent?
Consult the guidelines in IRS Publication 501 for qualifying relative. In general, the Internal Revenue Service (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 (the income limit does not apply for the purpose of determining dependent tax status when you are covering the dependent's health expenses via an ERA medical expense account);
- You must provide more than half of the dependent’s support for the year.
The list 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 on the IRS Internet site.
Can I use the Dependent Day Care (DCA) Program to pay for the dependent care of my domestic partnerís 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 I use the ERA Program for expenses
of my same-sex spouse and/or our dependent children?
Yes, the ERA Program is governed by federal law and is authorized under Section 125 of the Internal Revenue Code.
Do the federal tax law changes apply
retroactively to the ERA Program?
The changes may apply to past situations. The IRS indicated in the ruling that it is still working on guidance regarding the retroactivity. Additional information will be available after the IRS provides further guidance.
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 may employees enroll in the ERA
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 Wisconsin Retirement System for six months prior to enrolling in the ERA.
What are the selection requirements
under Section 125?
Participant selections for Heath Care Flexible Spending Accounts and Dependent Day 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 1 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 31 of each plan year; however, there is a run-out period that allows claims to be filed 90 days after the plan year has ended. 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"
IRS regulations require that any amount left in your account above $500 at the end of a plan year (including the run-out 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 carry over provision and how does it work?
The IRS now permits a carryover provision that allows up to $500 of unused FSA or LPFSA funds to be automatically transferred to the subsequent plan year. Any remaining balances beyond $500 will be forfeited to your employer.
What is the deadline for submitting
The deadline (or run-out period) for submitting both medical and dependent care claims for expenses incurred during the previous plan year, is 90 days after the end of the plan year.
What happens to an employee's Dependent Day Care Expense Reimbursement Account when employment is terminated?
An employee cannot 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.
What happens to an employee's Health Care or Limited Purpose Health Care Flexible Spending 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 the 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 (same sex or opposite sex), 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 (same sex or opposite sex) 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 (same sex or opposite sex) 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 Judgments, 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 start or increase medical expense reimbursement account coverage of the person losing Medicare or Medicaid coverage.
How does an employee enroll or change
an annual election amount if a change in status event occurs?
The employee must complete a change of election form and submit to their payroll or benefits person 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 TASC at:
Phone: 608.241.1900 or Toll Free at 1.800.422.4661
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 return the completed form to your payroll and benefits office.
The effective date of the change will be the first of the month that begins on or after the date that the change of election form is received and approved by your employer. Note: A change due to a birth, adoption, or placement for adoption, are effective as of the date of the event.