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Flexible Spending Account


Made possible by section 125 of the IRS code, these plans offer a “win-win” situation for employers and employees.  Money allocated to a Section 125 Plan is subtracted from the employee's taxable income.  It is also free from employer-paid Social Security and Unemployment taxes.

There are several ways for employees to save money:
 
Premiums – employee contributions to monthly premiums can be payroll deducted before taxes
 
Medical Spending Accountemployees use pre-tax dollars to pay for qualified medical expenses during your designated Plan Year.  Unused amounts are forfeited at the end of the year (the “use it or lose it” rule).  According to the Patient Protection and Affordable Care Act, the IRS will limit an employee's annual contributions to $2500 effective January 1, 2014.
 
Dependent Care – employees with eligible dependents can deduct their child-care expenses before taxes.
 
Transportation – employees can deduct their parking or bus expenses before taxes
 
Several third-party administrators offer these plans. Larry Sherwood & Associates will recommend a reliable company to manage this benefit.

 

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