Frequently Asked Questions
Employee Reimbursement Account (ERA) Program
ERA Program Details
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 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.
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 (LTEs),
student hourlies, per diems and other temporary employees may not
participate.
What benefits are included in the Employee
Reimbursement Account 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 limited categories of over-the-counter drugs and supplies.
Effective January 1, 2013, the maximum contribution per employee
is $2,500 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 $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
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 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 Employee Reimbursement
Account program 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 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 may employees enroll in the Employee
Reimbursement Account 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
Wisconsin Retirement System for six months prior to enrolling in
the ERA.
What are the selection requirements
under Section 125?
Participant selections 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 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 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
15 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 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, 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 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,
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 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
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 WageWorks Wisconsin Office at:
Phone: (262) 292-2136; or
E-mail: Ling.Chong@wageworks.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:
WageWorks
10375 North Baldev Court
Mequon, WI 53097
Fax: (866) 672-1662
If the change is approved by WageWorks, 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 WageWorks.
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