FAQs

Clarity FSA FAQs

Clarity HRA FAQs

Clarity SmartRide: General FAQs

Clarity SmartRide: New York City Affordable Transit Act FAQs

 

Clarity FSA FAQs


What’s a FSA?

A flexible spending account (FSA) is a benefit a company sponsor for their employees. A flexible spending account lets employees set aside pre-tax dollars to pay for eligible expenses like healthcare and/or dependent care, depending on plan type.


What are the different types of FSAs available?

Healthcare FSA
With a healthcare FSA, your employees can pay for eligible healthcare expenses on a pre-tax basis, which reduces the amount paid for federal income tax, FICA tax and, as applicable, their state income taxes. Healthcare FSAs cover an extensive list of eligible, reimbursable expenses, as defined by IRS Code Section 213(d).

Dependent care FSAs (DCAs)
Gives your employees the ability to pay for work related dependent care expenses with pretax dollars, which allows them to save on federal income tax, FICA tax and, as applicable, their state income taxes. DCAs may provide your employees more tax advantages than the federal income tax credit.

Limited-Purpose FSA If you offer an HSA-compatible
High-deductible health plan paired with a health savings account (HSA), you may offer only a limited purpose FSA to those employees that have an HSA. The limited-purpose FSA is designed to complement the HSA and may be established to pay for eligible vision and dental expenses. Medical expenses are not permitted, because the tax-favored HSA is used to fund those costs.


Who may contribute to an FSA?

Employees contribute to their own FSA through pretax salary deduction. You can also contribute money to your employees’ FSAs.


Can an FSA be offered with any health plan?

Yes. An FSA plan can be offered alongside any medical or dental plan. However, according to IRS regulations, if employees contribute to an HSA, they can only enroll in a limited-purpose FSA.


What regulations should I be aware of?

Healthcare FSAs are governed by Internal Revenue Code Section 125 when offered through a cafeteria plan. If the healthcare FSA isn’t offered through a cafeteria plan it’s subject to Internal Revenue Code Section 105. Usually they’re subject to ERISA, COBRA and HIPAA laws.


Can I offer my employees a grace period option?

Yes. The grace period allows employees up to two months and fifteen days beyond the end of the plan year to use their contributed funds. This lets employees incur and submit reimbursement requests using the previous year’s FSA balance. In the case of a calendar year plan, the grace period may extend to March 15 of the following year. Expenses from January 1 through March 15 can be reimbursed from the previous year’s FSA.


How does the grace period affect employees’ ability to contribute to an HSA?

An employee who’s enrolled in a healthcare FSA with a grace period can contribute to an HSA if there’s no money left in the FSA at the end of the plan year or they’ve reached the end of the grace period.


Can owners or partners participate in an FSA?

No. According to IRS guidelines, anyone with two percent or more ownership in a schedule S corporation, LLC, LLP, PC, sole proprietorship, or partnership may not participate. C-corporation owners and their families are eligible to participate in FSA plans because they are considered to be W-2 common law employees.


Do non-discrimination rules apply?

Yes. Based on requirements set by the Internal Revenue Service (IRS) Section 125 Cafeteria, flexible spending accounts cannot discriminate in favor of highly compensated or key employees. To ensure that employers are in compliance with these rules, nondiscrimination testing is required annually.


Is a domestic partner covered under an FSA?

Medical expenses of a domestic partner who is a tax dependent of the employee are eligible for tax-free reimbursement from the employee’s health FSA. Medical expenses for a domestic partner who is not the employee’s tax dependent are not eligible for tax-free reimbursement from the employee’s health FSA, even if the employer offers domestic partner health insurance benefits.


What options does an employer have with unused FSA funds?

Employers can either use leftover funds to apply to administrative costs incurred during the plan year or give it back to employees by crediting it to employees’ FSAs in the next plan year. The latter option can occur only if the funds are allocated on a uniform and reasonable basis to all of the FSA plan participants.


Is the employer taxed on unused funds that are forfeited from an employee’s FSA?

No, the employer is not taxed on unused funds.

Clarity HRA FAQs


What is an HRA?

Health reimbursement arrangements (HRAs) are tax-advantaged accounts that are funded with employer dollars to pay employee expenses not covered by their health plan. The employer outlines what expenses will be covered in the HRA summary plan document within the limitations outlined by the Internal Revenue Service. For example, an HRA could pay all eligible medical expenses, including premiums for health and long term care insurance, or the HRA could be limited to cover only dental or vision expenses. Although an HRA can have an option to carry forward unused funds to the future or for retirement, an employee cannot take their HRA funds to a new employer.


How is an HRA different from an FSA?

An HRA is a reimbursement account set up and funded by employer to cover eligible healthcare expenses. Unlike a healthcare FSA where the IRS defines the eligible services, the employer defines the services eligible for reimbursement from an HRA. Typically, an employer will reimburse healthcare services like doctor’s office visits and hospital services, and prescription drugs. For details on qualified expenses for your plan, check your summary plan document. Your employer will provide you this document which details the rules of coverage.


What are the benefits of offering an HRA to our employees?

You are most likely considering an HRA because you have decided to lower your health plan expenses by providing your employees a lower premium plan. The HRA will provide financial assistance to cover their eligible out-of-pocket healthcare expenses. An HRA offers a multitude of plan design options, allowing you to control the total cost of offering the account; and since HRAs are not pre-funded and are instead a promise-to-pay arrangement, you only pay when an employee files a claim.


What are some common HRA plan designs?

HRA for First Dollar Deductible Coverage
The HRA covers first dollar healthcare deductible until the HRA is exhausted.

HRA after a portion of your deductible is met
The company sets an out of pocket limit that the employee will incur before the HRA starts to pay for expenses. Once the employees out of pocket limit is met the HRA will cover future deductible expenses with no need for you to pay out-of-pocket until your HRA is exhausted.

HRA Percent-Based Reimbursement
The HRA has been designed to reimburse employees for a percentage of healthcare expenses. Until the HRA has been exhausted.


Can I offer an HRA alone without a health plan?

Stand-alone health reimbursement arrangements (HRAs) have, in most cases, been a casualty of the Patient Protection and Affordable Care Act (PPACA) — because they generally set limits on the maximum employer contribution, they typically can be found to violate the ACA’s ban on annual and lifetime coverage limits. A health care HRA must be Integrated with a health insurance plan. An Integrated HRA is an employer-funded medical reimbursement plan linked with a group health insurance plan.


Is there are tax benefit for me as an employer?

Yes, employers can deduct the amounts paid out of an HRA.


Is there a tax benefit for my employees?

Yes. HRA funds are contributed to employees on a pretax basis; therefore, disbursements are not included when calculating taxable income.


Is there are tax benefit for me as an employer?

Yes, employers can deduct the amounts paid out of an HRA.


What happens to the funds if my employee leaves the company?

HRA funds are not portable. With the HRA, you have pledged to pay the funds if needed; therefore any unused funds remain with you, the employer.


How much can an employer contribute to an employees’ HRA?

You may contribute any dollar amount you choose. This commitment is a promise-to-pay, with funds allocated only if and when an eligible claim is incurred. This employer commitment will engage the employee in the consumer-directed philosophy of bringing price awareness and control over their healthcare spending.


Do HRA contributions have to be made in equal amounts each month?

An HRA can be designed to make the HRA funds available to eligible employees on Day 1 or in installments throughout the year. Either way, the employer always holds the money until qualified expenses are incurred and then reimbursed.


Can employees contribute to an HRA?

No. Only employers may contribute funds to an HRA. If you would like to give your employees the opportunity to save for additional medical expenses tax-free, consider offering an FSA in conjunction with an HRA.


As an employer, do I have to contribute the same amount to every employee’s HRA?

Yes, according to Federal regulations, employer contributions must be comparable, that is they must be in the same dollar amount for all employees with the same category of coverage. You can vary the level of contributions for full-time vs. part-time employees. There may be other variations around comparability. Consult your broker, consultant, or tax advisor for additional information.


Can owners or partners participate in an HRA?

No. According to IRS guidelines, anyone with two percent or more ownership in a schedule S corporation, LLC, LLP, PC, sole proprietorship, or partnership may not participate. C-corporation owners and their families are eligible to participate in HRA plans because they are considered to be W-2 common law employees.


When does the HRA begin to pay for an employee’s expenses?

The employer has the choice of allowing the HRA to pay before the employee meets any deductible, or it can be set up so that the employee has to meet a certain amount of out-of-pocket expense before the HRA begins to pay.


Is the HRA allocation based on a calendar year or a rolling plan year?

An HRA can be for a calendar year, plan year, or other defined periods. HRAs are flexible in design so that employers can offer an HRA that best complements their overall employee benefit goals.


Can I, as employer, choose proration for new hires and family status change?

Yes. You can prorate contributions for new hires and family status changes that occur throughout the year.


Are high-deductible health plans required in order to offer an HRA?

No. The HRA can be paired with any health plan; there are no limitations.


What happens to unused funds in an HRA?

Funds that are not used can be returned to the employer or a can be allowed to rollover to the new plan year.

Clarity SmartRide:
General FAQs


What is a commuter account?

A commuter account is an employer-sponsored benefit program that allows you to set aside pre-tax funds in separate accounts to pay for qualified mass transit and parking expenses associated with your commute to work.


Why should I participate?

Contributions to a commuter account are deducted from your paycheck on a pre-tax basis, reducing your taxable income. You can save an average of 30% on your eligible transit and parking expenses.


What is a qualified mass transit expense?

Qualified expenses include transit passes, tokens, fare cards, vouchers, or similar items entitling you to ride a mass transit vehicle to or from work. The mass transit vehicle may be publicly or privately operated and includes bus, rail, or ferry.


What is a qualified parking expense?

Get reimbursed for parking expenses incurred at or near your work location or a location from which you continue your commute to work by car pool, vanpool or mass transit. Out-of-pocket parking fees for Parking meters, garages and lots qualify. Parking at or near your home is not an eligible expense.


Can I use my commuter account for commuting expenses like tolls and gas?

No. Benefits may not be used for tolls, gas, mileage or other personal commuting expenses.


Can I use my commuter account to pay for business or personal travel expenses?

No. You can only use commuter account funds to pay for your regular commute between your home and office on mass transit or van-pools.


Whose commuter expenses are covered?

Qualified expenses include those incurred for your transportation between your residence and worksite. Expenses for your spouse or dependents are not eligible.


Is there a limit to how much I can contribute?

Yes. Monthly limits are set by the IRS. Currently, contributions for transit and van-pooling and parking are limited to $255 per month. Any monthly expenses above these limits cannot be exempt from taxes and cannot be applied to future months.


How does it work?

You authorize your employer to deduct a pre-tax amount for parking and/or van-pooling/transit from each paycheck, up to the IRS limits stated above. You pay for the qualified transportation with your benefits debit card or you can pay out of pocket and then file a claim for reimbursement.


Can I change my election?

Yes. You can make adjustments to your contribution, join, or terminate plan participation at any time.


What happens if I don’t use all of my funds at the end of the plan year?

The money left in your account may be carried over into the next plan year.

Clarity SmartRide:
New York City Affordable Transit Act FAQs


Which employers must offer commuter benefits?

Non-governmental and non-union employers with 20 or more full-time employees working in New York City must offer their full-time employees the opportunity to use pre-tax income to pay for their transportation by public or privately owned mass transit or in a commuter highway vehicle.


What is considered a Full Time Employee?

A Full time employee is an employee that is scheduled to work 30 hours per week and has completed 4 weeks of employment.


When do employers have to begin complying with the law?

Employers must offer full-time employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits, other than qualified parking, by January 1, 2016. The law provides employers with a six-month grace period—from January 1, 2016 until July 1, 2016—before DCA is authorized to seek penalties. After July 1, 2016, employers will have an opportunity to cure (correct) any violation of the Commuter Benefits Law within 90 days before any penalty may be imposed.


What is a qualified parking expense?

Get reimbursed for parking expenses incurred at or near your work location or a location from which you continue your commute to work by car pool, vanpool or mass transit. Out-of-pocket parking fees for Parking meters, garages and lots qualify. Parking at or near your home is not an eligible expense.


What are the maximum penalties under the law?

Employers can be fined $100 to $250 for the first violation of the law if they do not cure the violation within 90 days. If the violation is not cured after the first fine is imposed, an additional fine of $250 may be issued after every additional 30-day period of noncompliance.


Are employers required to give their full-time employees a written offer of commuter benefits?

Yes. Employers must give their full-time employees a written offer of the opportunity to use pre-tax income to purchase qualified transportation fringe benefits and maintain a record of the offer and employees’ responses.


Does the law apply to chain businesses?

Yes. A chain business is a group of establishments that share a common owner or principal who owns a majority of each location and are engaged in the same business or operate under a franchise agreement with the same franchisor as defined in New York State General Business Law Section 681. The owner must count full-time employees at all of the chain business’ locations in New York City to determine the total number of full-time employees.


Does the law apply to temporary help firms?

Yes. Temporary help firms that employ 20 or more full-time employees who are placed in New York City are required to offer those employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits, other than parking.


Does an employer have to offer commuter benefits if its workforce is reduced to fewer than 20 full-time employees?

An employer must allow the full-time employees who had been eligible to purchase commuter benefits before the workforce was reduced with the continued opportunity to use pre-tax income to purchase qualified transportation fringe benefits for the duration of their employment.


Does the law apply to full-time employees whose employer is located outside of New York City but whose job responsibilities require them to work occasionally in New York City?

Yes. Full-time employees whose job responsibilities require them to work occasionally in New York City are covered by the law if they worked an average of 30 hours or more per week in the most recent four weeks, any portion of which was in New York City, and if their employer has 20 or more full-time employees.


What types of transportation costs are covered under the law?

Employees may use pre-tax income to pay for transit passes that could be used on public or privately owned mass transit or commuter vans with a seating capacity of six or more passengers.


Are employers required to include qualified parking expenses in their commuter benefits program?

Employees may use pre-tax income to pay for transit passes that could be used on public or privately owned mass transit or commuter vans with a seating capacity of six or more passengers.


What happens if I don’t use all of my funds at the end of the plan year?

No. Qualified parking expenses are not covered by NYC’s Commuter Benefits Law. However, employees may use pre-tax income to pay for qualified parking expenses under federal tax law.


Can you deduct the BeneFlex Smart Ride administrative fee from your full-time employees’ wages to set up a commuter benefits program?

No. Under New York State Labor Law, as of November 6, 2015, employers may not deduct the administrative fees associated with setting up a commuter benefits program from employees’ wages.


Can employees report noncompliance to DCA?

Yes. Employees can report noncompliance with DCA. Email [email protected]nyc.gov or call 311.

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