The CARES Act Offers Flexibility for HRAs, FSA & HSAs

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was created to provide economic assistance to families, workers, and businesses during these uncertain times. One important thing the CARES Act has done is to allow more flexibility for Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), or Health Reimbursement Arrangements (HRAs). Now, some over-the-counter medications and other common healthcare items will be eligible for reimbursement. Prior to the passage of this act, these medications were only eligible for reimbursement with a prescription.

illustration of 3 bottles of medications, one with green pills and one yellow
The CARES Act has made over-the-counter medications eligible for reimbursement through HSAs, FSAs and HRAs.

The Changes

If you are an employer who offers HSAs, FSAs, or HRAs, it is important that you make your employees aware of the new rules put in place by the CARES Act. They can now use their HSA or FSA to get reimbursed for over-the-counter medicine, as well as for healthcare items like feminine hygiene products. Before this act was passed, employees needed a prescription from their doctor just to get something as simple as Tylenol reimbursed through their HSA, FSA, or HRA. The change began retroactively as of January 1, 2020, which means reimbursements can be filed for over-the-counter medicine or other newly eligible products purchased anytime since January 1, 2020.

What Is Considered Eligible?

The CARES Act has made thousands of items eligible for reimbursement, including the following medications and healthcare products:

3 tampons over a stack of wrapped up pads
Feminine hygiene products will also be covered for reimbursement.
  • Acne medications
  • Sleep aids
  • Digestive aids, including laxatives
  • Tampons, pads, and liners
  • Cold, cough, and flu medicine
  • Allergy and sinus medicine
  • Anti-inflammatory medicine
  • Pain relievers
  • Baby rash ointments
  • Medications for eczema and psoriasis
  • Acid controllers

You and your employees might have had a rough year, but the government has been working on ways to lessen some of the burdens. These over-the-counter medications and other healthcare products being offered for reimbursement without a prescription will allow your employees to seek treatment for simple things without having to go to the doctor and pay a copay. 

If you do not already offer a HRA or group insurance to your employees, but are considering choosing to help them with healthcare costs, EZ can help. We can review all the available plans in your area and help guide you towards the most affordable ones with the best coverage options. You care about your employees and we care about helping you find a plan that meets all your needs. We will provide you with one agent to work with you and compare all available plans in your area for free. To get instant quotes, simply enter your zip code in the bar above, or if you wish to speak directly with one of our agents, call 888-998-2027. There is no hassle or obligation.

Pre-Tax vs After-Tax Deductions

If you are thinking of offering group insurance or a HRA to your employees, or if you are already offering them one or both, you might be wondering how to withhold employee insurance premiums and your contributions from their paycheck. Do the deductions come out of their paycheck pre-tax or after-tax? In some cases, you can deduct their premium and your contributions from their paychecks pre-tax; other premiums may need to be deducted after-tax. It is important to know what kinds of contributions can be deducted pre-tax, as well as the advantage and disadvantages of doing so. 

Pre-Tax Deductions

silhouette of a group of people standing in front of a large red heart.
Group health insurance deductions can be taken pre-tax.

Taking a pre-tax deduction means that you, the employer, withdraw money directly from your employees’ paychecks to cover the cost of benefits before income or payroll taxes are withheld. Internal Revenue Code (IRC) Section 125 allows for payroll deductions to be taken pre-tax for certain benefits, including:

In order to know which pre-tax benefits are exempt from state and local taxes, you will have to check your state and local laws. 

What is the advantage of deducting premiums and contributions from your employees’ paychecks pre-tax? For employees, when premiums and contributions are deducted pre-tax, the amount of income that they have to pay taxes on is reduced, in some cases by up to 40%. 

Doing this not only benefits your employees, it also benefits you; pre-tax deductions lower your tax liability, including the Federal Unemployment Tax (FUCA), State Unemployment Insurance (SUI) and FICA. For every dollar contributed to a retirement account, FSA or insurance plan, an employee’s taxable income is decreased accordingly. Your employees’ paychecks will effectively be lowered, meaning you will pay less in payroll taxes. 

The drawback is that your employee might owe taxes on the money you withheld in the future. This is because they did not pay any federal, state, and local taxes on the contributions at the time they were withheld. These taxes were simply deferred. For example, when your employee retires and begins drawing on their 401(k), they will owe taxes on the money they use from their pre-taxed 401(k) plan. 

After-Tax Deductions

caucasian female hand holding up hundred dollar bills.
Contributions to retirement plans and other benefits are deducted after income and payroll taxes are deducted. 

After-tax premiums and contributions are deducted from your employees’ paychecks after income and payroll taxes are deducted. Unlike pre-tax deductions, these will not affect your employee’s taxable income. However, you and your employee will owe more payroll taxes with after-tax deductions. If premiums are deducted after-tax, your employees will not pay taxes when using the benefits in the future, such as when they withdraw money from a post-tax retirement or health arrangement plan. Common after-tax premiums include:

  • Some retirement plans (such as a Roth 401(k) plan)
  • Disability insurance
  • Life insurance
  • Major medical coverage purchased by an employee on their own

Need Help?

If you need help finding group insurance, a HSA, FSA, or HRA, then EZ.Insure can help. We want to make sure that you save as much money as possible, which is why we compare all plans in your area, for free. We will assess your business’ and employees’ needs and find the best plan that will help cut costs, not coverage. If you need help figuring out which plans qualify for pre-tax and post-tax deductions, we can help with that too. We will answer your questions and guide you through the process. To start comparing plans for free, simply enter your zip code on the bar above, or to speak directly with an agent, call 888-998-2027.

Most Common Employee Benefits

One of the best ways to attract and retain the best employees is to offer competitive benefits. These benefits can come in many forms and are an important part of any employee’s compensation package. One of the most important benefits to most employees is health insurance; in fact, 56% of employees would prefer a healthcare plan to a raise! When you offer employees benefits such as health insurance, they are not only healthier, but happier. And what comes of happy employees? Higher productivity that helps boost your bottom line! So take a look at your budget, and see if you can consider offering one (or more) of these common employee benefits.

How to Structure Your Benefits Plan

a man standing at a crossroad with one green sign pointing right to daylight and a red sign pointing left to a dark night
You have 2 choices when it comes to offering health benefits to your employees.

Generally businesses utilize two different structures when it comes to offering employee benefits:

  • Organizational-oriented benefits: Employers offer employees specific or defined benefits, such as traditional health insurance, a pension or other retirement plan, or wellness program. These benefits are employer-owned and employer-selected.
  • Consumer-oriented benefits: Employers offer employees employer-funded dollars to purchase their own benefits. When it comes to healthcare, this can be something like a QSEHRA or ICHRA, both of which would allow you to reimburse your employees for wellness and medical expenses. 

Health Insurance

Health insurance is a must for many people when they’re looking for a job, and also the reason that many employees choose to stay in a job. In fact, research shows that 78% of employees are more likely to stay with an employer if they are offered health insurance. Many employees are interested in traditional healthcare plans, because they provide the most comprehensive benefits for them and their families. 

silhouette of a group of people with a red heart behind them

If you choose not to offer a traditional health insurance policy, you do have other options, but not offering any kind of healthcare plan can end up costing you. Losing even one employee can cost you 50-400% of their  annual salary. If you are unsure whether you can afford a group health plan, remember that there are a variety of group health insurance plans to choose from, and many are more affordable than you might think. This is especially true when you consider how important this benefit is to employee retention! To find out what plan is right for you, speak with an EZ agent. 

Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs)

In addition to offering a healthcare plan to your employees, you can also choose to offer a FSA or HSA. Both of these types of accounts allow employees to put tax-free money aside for qualified medical expenses, but they have a few differences. FSAs work with nearly any health insurance plan, but if your employee does not use the money by the end of the year, then they will lose it. With a HSA, the money employees put aside will continue to roll over for as long as they have the account. Unlike FSAs, though, HSAs must be paired with a High Deductible Health Plan.

Dental & Visioncaucasian woman in a suit holding up a large picture of her smile over her face.

You can also choose to offer your employees dental and vision care. Dental and vision coverage is cheaper than health insurance and so is much more affordable to offer. Employees with families or those who have issues with their vision will find these benefits especially important.

Retirement Savings Plan

A retirement savings plan, or 401(k) plan, is a great way to help your employees save towards their retirement. You can offer a certain amount to match their contributions. For example, many companies offer up to a 4% match to what their employees contribute to the plan. 

Paid Time Off

This is a great benefit to offer your employees. Being able to go on vacation and get paid for it is great for your employees’ morale. In addition, being able to call in sick and not have to worry about losing a day of pay is essential for many, especially employees with families. 

cutout of a person with a blue umbrella over them and short term disability coverage underneath them
Short term disability offers employees their pay until they can return to work.

Short-Term Disability

Offering short-term disability means that employees will continue to get paid if they cannot work after experiencing an injury or illness. Employers continue to pay a percentage of employee’s income until they are able to come back to work. 

Wellness Programs

These programs have grown in popularity over the years. Wellness programs help employees get healthier by providing benefits such as gym membership stipends. These programs don’t need to focus solely on physical health: according to one study, 73% of employers have mental wellness programs for their employees.

When it comes to choosing which benefits to offer your employees, you can’t go wrong with  health insurance. If you are looking for a group health plan, there are some things to consider, such as making sure you are following state regulations, and that you are getting the most benefits for the best price. EZ.Insure agents can check all these boxes and more, because we work with the top-rated health insurance companies in the nation. We will compare plans in your area and find a plan that fits your budget, and makes your employees happy. To get free instant quotes, simply enter your zip code in the bar above, or to speak to an agent, call 888-998-2027.

What Happens to That “Use It or Lose It” FSA Money?

Offering any type of healthcare plan to your employees is beneficial to both of you, and not just because they help keep your employees healthy and productive. There are a lot of tax benefits to offering healthcare, especially if you include savings accounts like flexible spending accounts (FSAs). 

FSAs, which you can offer alongside any type of healthcare plan (employees don’t even need to participate in the plan to opt into the FSA), allow employees to put money aside on a pre-tax basis and then use it for qualified medical expenses. This reduces your employees’ taxable incomes, as well as your payroll taxes. The downside for employees? The money in these accounts doesn’t roll over each year, so if they don’t use (most of) it, they lose it. The good news? That money reverts back to you, and you have a few options of what to do with it.

dollar bills in the ground growing
Employees can then use the pre-tax money throughout the year on a wide variety of expenses,

How FSAs Work

If employees choose to opt into your offered FSA, then they will contribute a certain amount of their paycheck to the account. They can then use that pre-tax money throughout the year on a wide variety of expenses, such as deductibles, copays, coinsurance, glasses, dental care, prescription and OTC medications, and even many common drugstore items. Employees’ annual contributions are taken out of their paychecks in installments, and they are treated as salary reductions for tax purposes (hence the tax benefits!). The reimbursements for the qualified expenses are also tax-free. 

Both you and your employee can contribute to their FSA, but your employee’s contribution cannot exceed a certain amount. For 2020, that amount is $2,750. Whatever you choose to contribute is in addition to that amount and does not count towards their limit. 

The “Use It or Lose it Rule”

FSAs take a bit of planning on an employee’s part. They need to choose their contribution amount during an annual enrollment period, and that amount cannot be changed during the year unless certain qualifying “change of status” events occur, such as change in marital status. 2020, however, has been a bit different: the IRS announced in May of this year that they will allow mid-year changes to FSA contributions, but this is most likely a temporary measure. 

money rolled up in a rubber band on a white table.
With an FSA money not used by employees doesn’t go to waste! A portion can roll over!

If employees don’t end up using all of the money in their FSA accounts by the end of the year, then the balance generally reverts back to you, the employer. There are two exceptions to this “use it or lose it” rule:

  • Your FSA can allow a 2 ½ month grace period, meaning that (if your FSA operates on a calendar year basis, which most do) your employees will have until March 15th to use the funds
  • Your FSA can allow employees to roll over $500 of their unused balance into the next year

You can only offer one of these options to employees, and you are not actually required to offer either of them, but it is common practice to do so. If you do offer one of these options to your employees, and they still have more than $500 left in their account at the end of their year, or if they haven’t used up all of the money by March 15th, then that money reverts back to you. So what do you do with it?

What You Can Do with Forfeited Money

The IRS gives you a few options of what to with any unused FSA dollars. You can use it to:

  • Help with plan administration costs. You can choose to outsource the administration of your FSA for a cost of around $5/month/employee, and you can use the leftover funds to pay for it. 
  • Reduce employee FSA salary reductions for the next year. For example, if an employee wants to contribute $500 to their next year’s FSA, you could allow them to contribute only $480 and use leftover funds to make up the other $20. caucasian hand putting coins into a black piggy bank.
  • Add money to employees’ accounts. You can choose to use the money to offset any extra expenses incurred by employees in the next year. For example, if an employee contributes $1,000 to their next year’s FSA, but submits claims for $1,200, you can use leftover FSA money to cover that extra $200. This is generally not the most popular option, because it is only useful to employees if they spend more than they’ve put aside. They might also begin to expect this extra coverage every year. 
  • Pay your employees in cash. If you choose to do this, you need to make sure that you are distributing the money in a “uniform” fashion, meaning you can’t just give the money back to the one or two employees who didn’t use their FSA money. You would also need to track down any former employees from that year and pay them their share. Remember, too, that the money you give them will be considered income, so it must be reported and will have taxes deducted from it. 

Tax-advantaged healthcare benefits are basically a win for everyone involved, even with the small caveat of the FSA “use it or lose it” rule. You and your employees save on taxes, and any balance remaining in their account is never truly “lost” – you can take it and use it to continue helping them (or your business) with healthcare costs. We get it, this is all complicated stuff, so if you have questions about offering FSAs or any other type of group health benefit, we can help. Drop us a line and we’ll set you up with one (and only one) knowledgeable agent who will answer all of your questions, go over all of your options with you, and give you fast, accurate quotes when you’re ready for them. Ready to get started? Simply enter your zip code in the bar above, or to speak to an agent, call 888-998-2027.

New IRS Rule Allows Mid-Year Plan Changes

There are many ways you can describe the health insurance system, but when it comes to enrollment, “flexible” isn’t always one of them. Each year, you choose your company’s plan and your employees have a set enrollment period (either the ACA open enrollment period or another one of your choosing) during which they can sign up. Once they do, that’s pretty much it for the year, unless they experience a qualifying life event, like marriage or the birth of a child. But 2020 hasn’t been an ordinary year. The IRS has decided to recognize this fact and allow mid-year changes to healthcare plans, and they are leaving the decision about whether to allow these changes up to you, the employer.

What the IRS Is Allowing

cafeteria plan written on a white piece of paper
The IRS has decided to allow mid-year changes to healthcare plans including cafeteria plans.

If you offer your employees a healthcare plan under IRS Section 125 – otherwise known as a Cafeteria Plan – and/or a flexible spending account (FSA), then you have a decision to make this year. The normally rigid rules surrounding when and how employees can make changes to these plans have been suspended by the IRS, and you now have the option of letting them make a one-time change to their plan. This comes at a time when employees may need relief from premium payments, extra coverage, or even more time to use their FSAs. You are not required to let employees make any changes, but if you decide to, you can allow them as many options as you like, including:

  • Enrolling in the plan if they had previously declined coverage
  • Changing from a higher to a lower cost plan, or vice versa
  • Moving from family to individual coverage, or vice versa
  • Dropping coverage, but only if they have another plan in place

Again, you don’t have to allow all or any of these changes. You also have to be sure that you make the options fair and equal to everyone. The IRS even suggests that employers only offer options that would improve healthcare coverage, such as moving from an individual to a family plan or from a plan that covers very little to a more comprehensive plan, to make clear that these changes are meant to benefit your employees, not simply lower your premium contributions. 

In addition to changes to their healthcare coverage, employees now also have more flexibility when it comes to their FSAs. Your employees might be finding it harder to make the most of their FSA dollars these days because they haven’t been going to the eye doctor or dentist, for example. If they use these accounts for dependent care, they may have been unable to send their children to summer camp this year. For this reason, the IRS has extended the grace period for using 2019 funds through the end of 2020. Employees will also be able to roll over more of their funds through 2021.

What Employers Need to Consider

Your employees might welcome the chance to change their insurance policies right now, but you also have to think about how it will affect your business. Consider:caucasian man sitting down writing on a white board.

  • How it will financially impact your business if employees drop their plans, especially if it is the healthier employees who opt out and the employees who need more care who stay in
  • Your plan’s requirements. If your plan is fully-insured, there may be a minimum number of participants, so having employees opt out or change plans might mean having to rethink your whole healthcare policy.
  • The admin! It will take a lot of time and resources to review and process all of the changes. 

It’s a tough decision to make. These are crazy times, and both you and your employees have a lot on your plates. As a small business owner who may already be struggling to provide healthcare, but who also wants the best for your employees, you may want to allow changes, but limit them. Consider following the example set out by the IRS and offer your employees the ability to enroll in or upgrade their plans. You can also decide to do an emergency stock-take: throw together a mid-year employee health survey and see what is on your employees’ minds. You have until December 31, 2021 to adopt your plan (which can be retroactively implemented), so don’t stress too much!

If you find yourself completely confused, then remember, EZ’s knowledgeable agents can answer any questions you have. And if you find YOU need a change in policy for your company, then come to us for instant, accurate, free quotes. We’re ready, willing, and able to shoulder some of the burden of small business healthcare, so get started with us today. Simply enter your zip code in the bar above. Or to speak with an agent directly, call 888-350-1890. No hassle, no obligation!