Frequently Asked Questions

Q: What is a Cafeteria Plan?
A: Authorized through Section 125 of the IRS code, pretax dollars are used to pay for eligible health premiums, certain medical expenses and dependent day care costs. The plan allows you to avoid taxation on a portion of your income. You save taxes on every dollar you deposit.

Q: How does the 125 Cafeteria Plan work?
A: You elect to deposit a portion of your pretax salary into a Cafeteria account. This account is used to reimburse you for eligible expenses. You determine how much money you spend on an annual basis for eligible expenses and elect to take a monthly salary reduction for those expenses. The funds are placed into a special account that you may withdraw from as reimbursement for the eligible expenses. The reimbursement is completely tax free for the covered expenses.

Q: What are these eligible expenses?
A: Medical expenses (not covered by insurance plans), dental and vision care expenses (not covered by insurance plans), dependent day care expenses health, dental and vision premiums sponsored by your employer (or some individual supplemental policies) and group term life plans .

Q: Can I Participate In The Pretax Dependent Care Account And Still Receive a Tax Credit For My Dependent Care?
A: You cannot participate in the plan and receive a tax credit for the same dependent care expenses. Also,the maximum amount of expenses that may be taken into account to determine your available federal tax credit will be reduced, dollar for dollar, by the amount of your reimbursement under the plan. (For example: You shelter $1,800 under the Cafeteria Plan. At the end of the year, your dependent day care expenses are $2,000. You may claim the additional $200 on your federal tax form.)

Q: Which Is Better - The Pretax Cafeteria Dependent Day Care Account Or The Tax Credit?
A: There are a number of variables which determine whether a participant is better off using the Dependent Care Credit or the Dependent Day Care Account. Each participant must review their unique situation and consider their tax filing status, number of dependents, adjusted gross income, tax bracket, etc. We suggest you consult with your accountant or tax advisor to determine your best course of action.

Q: How Much Money May I Deposit Each Year?
A: You may deduct a total of $5,000 in the Dependent Day Care Account ($2,500, married filing separately). Medical reimbursement expenses will be limited to an annual maximum chosen by your employer. Any funds left in your accounts at the end of the year, that you are unable to use, will revert to the company and you will lose them. Only deduct what you know you can use.

Q: How Are Taxes Handled?
A: Again, there are no taxes payable for the amounts deducted pretax. The reimbursement is handled as a fringe benefit provided by your employer. Dollars designated to a pretax account are deducted from your paycheck prior to the computation of taxes. The new "gross" income (after the cafeteria plan deduction) is reported to Social Security, Federal and State Income taxes. Please be aware that the lower income figure is reported to Social Security and could result in a slightly lower retirement benefit for you.

Q: How Do I Get My Reimbursement?
A: Send a completed Claim Form (attaching all receipts) to Professional Benefit Services, Inc. and they will prepare a distribution of your funds for you. Monthly contributions on your behalf will accumulate in your account until you submit expenses for reimbursement.

Q: What Happens If I Don't Spend All The Money In My Account?
A: You must incur expenses for all the money in your pretax accounts for services received (incurred) during the plan year or forfeit the money remaining in the account. This is called the IRS "Use it or Lose it Rule." You have 30 days after the end of the plan year to withdraw your funds. (At that time you can only claim expenses incurred during the plan year.) Any remaining funds in the account after the 30 days will be forfeited.

Q: Can I Change The Amount I Deposit?
A: You may change the amount you deposit once a year during the annual open enrollment period. You may also change your amounts during the plan year if you experienced an IRS-defined Qualified Family Status Change. IRS Qualified Family Status Changes include: marriage, divorce, death of a spouse or child, birth or adoption of a child, change in job status from full-time to part-time or part-time to full-time by the employee or the employee's spouse, termination or commencement of employment of a spouse, the taking of an unpaid leave of absence by the employee or the employee's spouse, a significant change in hours of work of the employee or the employee's spouse, a return from FMLA leave, and the issuance of a Qualified Medical Child Support Order. Any changes to your pretax account must be consistent with the family status change event. (For example, if you go from full-time to part-time or part-time to full-time employment, you may reduce or increase your dependent day care deduction, but may not be able to cancel the dependent day care election.)

Q: What If I Have Questions?
A: You may call our office, 1-800-982-2012, during normal business hours and speak to a Cafeteria Plan Administrator. You can email us any time at cafeteria@profben.com. We will respond back to you during normal business hours.