NORTHERN MICHIGAN UNIVERSITY
2009 FLEXIBLE SPENDING ACCOUNTS
If you expect to have any uninsured medical, dental, or vision expenses next year, or if you
pay someone to care for a child or incapacitated dependent adult in order for you and your
spouse to work, then you will be interested in the Flexible Spending Accounts. Both plans
are intended to meet the requirements of Section 125 of the Internal Revenue Code.
There are two separate accounts, one for health care expenses and one for dependent
care expenses. You can contribute to both of them, only one, or neither. If you wish to
participate in one or both of these accounts, you must decide how much to deposit for the
plan year, i.e., January 1 through December 31, 2009.
Each reimbursement account is similar to a checking account. You make regular deposits
to your reimbursement account each pay period according to your election. When you
incur a qualifying expense, submit the necessary documentation for reimbursement to the
Human Resources Department with your reimbursement request form. Money then is
withdrawn from your account to cover the expense and you receive the reimbursement.
Deposits to your reimbursement account are made with before-tax dollars and
reimbursements are not subject to income taxes. This means that you save on federal,
state and Social Security taxes.
For example, assume that you are married and elect to deposit $500 into a health care
reimbursement account for the plan year. Assume also that you earn $25,000 a year.
Because pay withheld under a cafeteria plan is not subject to income and FICA (Social
Security) taxes, your tax savings (assuming no tax deduction) is as follows: (Based on
2008 tax tables)
With Flexible
Spending Account
Without Flexible
Spending Account
Gross Income
Pay Withheld - Flex Spending
Taxable Income
Federal Income Tax
State Income Tax
FICA Tax
TOTAL TAXES
$25,000.00
500.00
24,500.00
3,675.00
1,065.75
1,874.25
$ 6,615,75
$25,000.00
-025,000.00
3,750.00
1,087.50
1,912.50
$ 6,750.00
TOTAL TAX SAVINGS WITH
FLEXIBLE SPENDING ACCOUNT
$
134.25
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Affect on Other Benefits – Social Security Benefits
Flexible Spending Account deductions lower your pay used to calculate your Social
Security benefits. This means that if you are earning less than the Social Security wage
base, you will pay less FICA taxes now, but your eventual Social Security benefit may be
slightly less due to the lower wage used in the Social Security benefit calculation.
However, in most cases, the amount of FICA tax savings will be more than the amount by
which your future Social Security benefits will be reduced.
Other Benefits
Although Flexible Spending Account deductions lower your salary when computing income
tax, the deductions do not lower the amount of salary used to calculate other benefits, such
as retirement plan contributions, long-term disability, and group life insurance. It could,
however, affect your maximum exclusion allowance for tax-deferred annuities.
Health Care Spending Account
Traditional medical coverage provided by the University or your spouse's plan may not
cover all health care expenses. Under the Health Care Spending Account, you can use
before-tax salary dollars to pay for services such as orthodontia, individual psychiatric or
psychological counseling to the extent not reimbursed under a health plan, and other costs
that are not covered by your medical plan. In fact, almost any health, dental or vision care
expense that would qualify as a deduction on your income tax return will qualify for
reimbursement as long as the expense is not paid by another benefit plan. The complete
copy of IRS Publication 502, Medical and Dental Expenses, may be obtained at
http://www.irs.gov/pub/irs-pdf/p502.pdf. Examples include the following:

The deductible or the co-pay amount you pay under the health plan. If you or a
member of your family is covered under two health plans, only the amount not paid
under either plan is eligible for reimbursement.

Deductibles and co-pays for other health, dental or vision plans under which you or
your family is covered.

Expenses not covered by your health plan.

Dental expenses to the extent not reimbursed under another health plan.

Vision expenses as well as the cost of a guide dog for the blind and special
educational devices for the blind (such as a special typewriter).

Hearing expenses, including hearing aids, special instructions or training for the
deaf (such as lip reading) and the cost of acquiring and training a dog for the deaf.
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
Individual psychiatric or psychological counseling to the extent not reimbursed under
a health plan.

Transportation expenses to receive medical care, including fares for public
transportation and actual out-of-pocket expenses. You can use a standard mileage
rate of $.27 per mile for medical purposes (effective 7/1/08 to 12/31/08, subject to
change per IRS notice).

Miscellaneous expenses, including installation and monthly rental charges for
fluoride treatment to home water (by recommendation by a dentist).
If you decide to participate in this account, you must choose the amount of before-tax pay
you want deposited to your account for the year. Your deposits can range to a maximum
of $2,500 annually. Your deposits are deducted from your pay before federal, state, and
Social Security taxes have been deducted. This reduces your taxable income and your tax
obligation.
Dependent Care Spending Account
This account permits you to use before-tax dollars for eligible dependent care expenses if
you need to pay for dependent care services so that you, or you and your spouse, can
work outside the home. Examples of eligible dependent care expenses include:

Household services related to the care of your dependent.

The care of your dependent in your home.

The care of your dependent outside of your home if that dependent regularly
spends at least eight (8) hours each day in your home.
The Internal Revenue Service allows you to participate in this account. To qualify for
reimbursement of these expenses, the following rules must be satisfied:

If the expenses are for your child, the child must be under 13 years of age and be
claimed as a dependent on your income tax return.

Other reimbursable expenses must be for your disabled spouse or other disabled
individual who is your dependent for tax purposes.

The services must be necessary to enable you, or if you are married, you and your
spouse, to be employed or to go to school on a full-time basis.

The services may be provided inside or outside your home, but not by someone
who is your minor child or your dependent for income tax purposes.
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
If services are provided by a day care facility that cares for six (6) or more children
at the same time, it must be a licensed day care center.

The amount reimbursed cannot be greater than the income you or your spouse
earns, whichever is lower.

The services must be for the physical care of the child, not for education, meals,
and other service.
Your deposits to your Dependent Care Spending Account can range up to a maximum of
$5,000 annually. It is important to remember that the maximum amount that you deposit
cannot be greater than the income you or your spouse earns, whichever is lower.
Dependent Care Tax Credit vs. the Spending Account
If you do not pay for all of your dependent care expenses from your spending account, you
may be able to take a percentage of those expenses as a credit on your federal income tax
return. For one dependent, you may be able to take a percentage of your unreimbursed
dependent care expenses up to $2,400 as a tax credit. If you have two or more
dependents, you may be able to take a percentage of your un-reimbursed dependent care
expenses up to $4,800 as a tax credit.
Keep in mind that you cannot use both the spending account and a tax credit for the same
expenses. Furthermore, your expenses eligible for the tax credit will be reduced, dollar for
dollar, by each dollar that is reimbursed from your spending account for dependent care
expenses. However, you may be able to coordinate some of your dependent care
expenses between the spending account and the federal tax credit. In order to examine
your alternatives, you should consult with a tax advisor.
If you want to claim the tax credit or use the spending account, you must get IRS Form W10, Dependent Care Provider's Identification and Certification, and give it to each of your
care providers to fill out and return to you. This form should not be sent to the IRS.
Instead, keep it with your records.
On the Form W-10, your care provider (unless tax-exempt) should provide you with its
taxpayer identification number. If you claim the tax credit or use the spending account, you
must supply the correct name, address and taxpayer identification number of your care
provider(s) with your federal income tax return. If you do not furnish correct or complete
information to the IRS, you will not be able to claim the tax credit or to use the tax-free
spending account unless you show the IRS that you exercised due diligence in attempting
to acquire the required information.
See IRS Publication 503, Child and Dependent Expense, for more information at
http://www.irs.gov/pub/irs-pdf/p503.pdf for more information.
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Planning your Deposits for the Dependent Care Account
Each year you must decide, in advance, what your deposit to your Dependent Care
Spending Account will be. This amount cannot be changed during the year unless you
have a change in status, such as:

Change in legal marital status, including marriage, death of spouse, divorce, legal
separation or annulment.

Change in the number of tax dependents, including birth, adoption, placement for
adoption, commencement or termination of adoption proceeding, or death of
dependent.

Change in employment status of the employee, spouse or dependent including:
Termination or commencement of employment;
Commencement or return from an unpaid leave of absence;
Commencement or termination of strike or lockout; or
Change from salaried to hourly which causes or terminates eligibility under
a plan.

The dependent satisfies or ceases to satisfy the requirements for coverage due to
attainment of age, student status or any similar circumstances as provided under
the accident or health plan under which the employee receives coverage.

Significant cost or coverage change due to a new child care provider, a child begins
school, or a raise in care giver compensation.

A change in the place of residence or work site of the employee, spouse or
dependent.

A change in the spouse’s or dependent’s coverage under another employer’s plan
including election and open enrollment changes.

The taking of a leave under the Family Medical Leave Act (FMLA).

Termination of employment for a period exceeding 30 days.

An addition or elimination of a fringe benefit under this Plan.

Significant cost change imposed by dependent care provider (who is not a relative
of employee).
Should your family status change and you decide to begin, discontinue, or change the
amount of your deposits, your forms must be returned within 30 days of the date of your
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family status change. The IRS requires that any money remaining in your account(s) at
year-end must be forfeited. Since the University does not want to gain from these
forfeitures, significant unused employee deposits may be reallocated to all participants in
future years. In order to maximize the tax advantages offered through the reimbursement
accounts, you should estimate your health care and your dependent care expenses
carefully before the beginning of each year.
Planning your Deposits for the
Health Care Spending Account
Each year you must decide, in advance, what your deposit to your Health Care Spending
Account will be. However, any changes you make to your amount must correspond and be
consistent with the event permitting the election change. For example: if you add a
dependent, the deposit amount could increase. Events permitting a change include:

Change in legal marital status, including marriage, death of spouse, divorce, legal
separation or annulment.

The Judgment, Decree or Order requiring a change in health coverage for your
child.

Change in the number of tax dependents, including birth, adoption, placement for
adoption, commencement or termination of adoption proceeding, or death of
dependent.

Change in employment status of the employee, spouse or dependent including:
Termination or commencement of employment;
Commencement or return from an unpaid leave of absence;
Commencement or termination of strike or lockout; or
Change from salaried to hourly which causes or terminates eligibility undera
plan.

The dependent satisfies or ceases to satisfy the requirements for coverage due to
attainment of age, student status or any similar circumstances as provided under
the accident or health plan under which the employee receives coverage.

A change in the place of residence or work site of the employee, spouse or
dependent.

A change in the spouse’s or dependent’s coverage under another employer’s plan
including election and open enrollment changes.

Gain or loss of Medicare or Medicaid entitlement.

The taking of a leave under the Family Medical Leave Act (FMLA).
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
Termination of employment for a period exceeding 30 days.

Eligibility for COBRA continuation coverage by the employee, spouse or dependent
under the University’s group health plan.

An addition or elimination of a fringe benefit under this Plan.
Should your family status change and you decide to begin, discontinue, or change the
amount of your deposits, your forms must be returned within 30 days of the date of your
family status change. The IRS requires that any money remaining in your account(s) at
year-end must be forfeited. Since the University does not want to gain from these
forfeitures, significant unused employee deposits may be reallocated to all participants in
future years. In order to maximize the tax advantages offered through the reimbursement
accounts, you should estimate your health care and your dependent care expenses
carefully before the beginning of each year.
How to Enroll
Enrollment in these accounts will be possible only during the flexible spending open
enrollment period which is one month each year (i.e., November). New hires may
participate upon hire, however, a decision must be made and forms returned to Human
Resources within 30 days of hire. Only expenses you incur on or after the first day of the
plan year, i.e., January 1, 2009 (or your participation in this plan, if later) will be eligible for
reimbursement.
If you Leave
Participation in the spending accounts will not end automatically on the date your
employment with the University ends. If at that time there are funds remaining in your
Dependent Care Spending Account, you will be able to submit claims incurred prior to your
termination date up to the amount remaining in your account.
Your Health Care Spending Account works differently. If at the time of your termination
there are funds remaining in your Health Care Spending Account, you also will be able to
submit claims incurred prior to your termination date but up to the total amount that you
elected to deposit in your account, less the amount of any prior claims paid. Also, if there
are funds remaining in your account you may make additional contributions to your account
under COBRA on an after-tax basis after you leave the University. If you continue making
contributions to your account, you may continue to submit claims for eligible expenses that
were incurred after your termination date and through the end of the year (or through the
end of the month for which you made your last contributions if earlier). If you choose not to
continue contributions after you leave the University, you may submit claims incurred only
through your termination date.
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Procedures for Expense Reimbursement
Claims incurred during a calendar year must be submitted by March 1 of the following
calendar year. The minimum combined expenses submission is $50. If your claim is for
less than $50, your claim will be returned, except for December and the extended plan
year.
Dependent Care Expense Reimbursement
To request reimbursement, you must submit a completed Dependent Care Assistance
Program Reimbursement Request form to the Human Resources Department, 158
Services Building. Only expenses incurred during the same calendar year during which
your deposits were made can be applied against that year’s balance in your account.
Reimbursement checks will be written promptly (usually within 5 days) provided there are
sufficient funds in your account to cover the amount of the request. If not, you must retain
the request form until there is enough money in your account.
You will have until March 1st of the next calendar year to submit Reimbursement Requests
for expenses that were incurred in the previous calendar year and retain a before-tax
status on the reimbursement.
Any significant unused employee deposits left in the participants’ accounts on or after
March 1st may be pooled with all other participants' balances and distributed on a pro rata
basis to all who were participants on December 31 and have re-enrolled for the coming
year. Therefore, you will want to carefully and conservatively estimate your expenses
before you sign the Authorization forms since the IRS requires that any money remaining in
your account(s) at year-end must be forfeited.
You cannot withdraw the money from your account except for reimbursement of eligible
expenses even if you terminate from the University.
Special Procedures for Health Care Claims
1.
First, file a claim with our health, dental or optical insurance administrator and an
Explanation of Benefits (EOB) form will be sent to you after the claim is processed.
The EOB form will show the amount, if any, that the plan does not cover.
2.
If you are also covered under your spouse's plan, you will need to file the claim with
his/her insurance company next. If any amount of the claim still remains unpaid,
you will receive another EOB form from that carrier.
3.
Send the original EOB forms, along with a reimbursement request to the Human
Resources Department at the University.
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4.
If the claim is not covered under any plan, submit a detailed list, including itemized
receipts, directly to the Human Resources Department with your reimbursement
request form.
5.
You may pay the expense directly, and then submit a claim for reimbursement
including itemized receipts.
Reimbursement checks will be written promptly (usually within 5 days). The plan provides
that the entire amount you have elected to deposit in your Health Care Flexible Spending
Account will be made available to you throughout the plan year, less the amount of any
prior claims paid.
You will have until March 1st of the next calendar year to submit Reimbursement Requests
for expenses that were incurred in the previous calendar year and retain a before-tax
status on the reimbursement.
Any significant unused employee deposits left in the participants’ accounts on or after
March 1st may be pooled with all other participants' balances and distributed on a pro rata
basis to all who were participants on December 31 and have re-enrolled for the coming
year. Therefore, you will want to carefully and conservatively estimate your expenses
before you sign the Authorization form since the IRS requires that any money remaining in
your account(s) at year-end must be forfeited.
You cannot withdraw the money from your account except for reimbursement of eligible
expenses even if you terminate from the University.
THE FLEXIBLE SPENDING ACCOUNTS ARE OFFERED BASED UPON A CURRENT
UNDERSTANDING OF THE PROVISIONS OF THE INTERNAL REVENUE CODE.
SUBSEQUENT LEGISLATION AND REGULATIONS MAY CHANGE THE RULES FOR
THESE ACCOUNTS.
THEREFORE, THE PLAN MAY BE AMENDED OR
DISCONTINUED IF CHANGES IN THE INTERNAL REVENUE CODE OR THE
REGULATIONS MAKE IT ADVISABLE TO DO SO. THIS PLAN HAS BEEN DESCRIBED
IN GENERAL TERMS ONLY. IN THE EVENT OF A CONFLICT BETWEEN THE
CONTENT OF THIS DESCRIPTION AND THE PLAN DOCUMENT, OR IN CASES NOT
SPECIFICALLY COVERED BY THIS DESCRIPTION, THE TERMS OF THE PLAN
DOCUMENT WILL GOVERN.
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WORKSHEET: DEPENDENT CARE TAX COMPARISON
Estimate of Federal Tax Credit
1.
Total expected child care expenses (cannot be greater
than the lesser of your income or your spouse's income)
$_________
2.
Maximum expenses eligible for tax credit
($2,400 for one child; $4,800 for more than on child*)
$__________
3.
Percentage from Table 1 based upon joint income
_________%
4.
Estimate tax credit (multiply line 3 by the smaller of line 1 or line 2) $__________
Estimate of Tax Savings with the Dependent Care Spending Account
1.
Annual deposit to your Dependent Care Spending Account
(Cannot be greater than $5,000 or the lesser of your income or
your spouse's income)
$__________
2.
Federal tax rate (using your joint income from Table II)
_________%
3.
Social Security tax rate (if your salary plus deposit is less than or _________%
equal to $106,880, use 7.65%; use 1.45% for amounts over $106,880)
4.
Michigan tax rate (4.35%)
_________%
5.
Total tax rate (line 2 plus line 3 plus line 4)
_________%
6.
Estimate tax savings (multiply line 1 by line 5
$__________
*The maximum amount of expense eligible for the tax credit must be reduced dollar for
dollar by amounts paid from your Dependent Care Spending Account.
Compare the estimated tax credit with the estimated tax savings using the Dependent Care
Spending Account. The Dependent Care Spending Account usually is more advantageous
if your total income is greater than $25,000 per year. However, since each person's tax
situation is unique, you should talk with a tax advisor before making your final decision.
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TABLE I
Adjusted Gross Income
Up to $10,000
$10,001 - 12,000
$12,001 - 14,000
$14,001 - 16,000
$16,001 - 18,000
$18,001 - 20,000
$20,001 - 22,000
$22,001 - 24,000
$24,001 - 26,000
$26,001 - 28,000
$28,001 and over
Percentage
30
29
28
27
26
25
24
23
22
21
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TABLE II
FEDERAL INCOME TAX RATES FOR 2007
Tax Rate
1.
2.
3.
4.
Married Filing Jointly - Taxable Income:
$0 to $16,050
$16,050 to $65,100
$65,100 to $131,450
$131,450 to $200,300
$200,300 to $357,700
Over $357,700
10.0%
15.0%
25.0%
28.0%
33.0%
35.0%
Single Individuals - Taxable Income:
$0 to $8,025
$8,025 to $32,550
$32,550 to $78,850
$78,850 to $164,550
$164,550 to $357,700
Over $357.770
10.0%
15.0%
25.0%
28.0%
33.0%
35.0%
Married Filing Separately - Taxable Income:
$0 to $8,025
$8,025 to $32,550
$32,550 to $65,725
$65,725 to $100,150
$100,150 to $178,850
Over $178,850
10.0%
15.0%
25.0%
28.0%
33.0%
35.0%
Head of Household - Taxable Income
$0 to $11,450
$11,450 to $43.650
$43,650 to $112,650
$112,650 to $182,400
$182,400 to $357,700
Over $357,700
10.0%
15.0%
25.0%
28.0%
33.0%
35.0%
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