TAX-ADVANTAGED SPENDING ACCOUNTS

Tax-Advantaged Spending Accounts allow you to set aside pre-tax dollars from your paycheck to reimburse yourself for eligible expenses.

The City offers the following accounts for tax savings on eligible expenses:

• A Healthcare Flexible Spending Account (HCFSA) allows you to reimburse yourself for eligible health care expenses for you and your eligible dependents. For 2024, you can set aside $3,050.

• A Dependent Care Reimbursement Account (DCRA) allows you to reimburse yourself for day care expenses for your eligible dependents. For 2024, you can set aside $5,000.

• HCFSAs and DCRAs must follow strict Internal Revenue Code rules. It’s important to estimate your annual expenses carefully and know the important deadlines.

When You Can Enroll

You can enroll in the Healthcare Flexible Spending Account and the Dependent Care Reimbursement Account during Open Enrollment. You can only make a change to your account or enroll during the year if you have a qualifying life event. If you want to continue to participate, you must re-enroll each year during Open Enrollment.

Eligible Health Plan Tax Dependent

Internal Revenue Service (IRS) rules determine who is an eligible dependent. Under federal tax law, “health plan tax dependent” includes your children (biological, adopted, step and foster) through the end of the year in which they turn age 26. It also includes other covered individuals for whom you can claim an exemption on your federal taxes. In addition, it includes family members – or an unrelated person who lives with you for the entire year – if they receive more than half of their support from you; are a U.S. citizen, resident or national, or a citizen of Mexico or Canada; and are not claimed as a “qualifying child” dependent on anyone else’s tax return. These rules are complex and may require the assistance of your tax advisor.

Estimate Expenses Carefully

It is important to estimate HCFSA expenses carefully and set aside only the amount you think you will need while you are contributing to the account during each plan year. The elections you make for the HCFSA or DCRA are valid for the 12-month plan year. Changes are NOT permitted outside of a qualifying life event as approved by LAwell. This is an Internal Revenue Code rule and the LAwell program cannot make exceptions.

Important Deadlines and Restrictions

HCFSAs and DCRAs are not savings accounts. You can use the money you set aside only for eligible expenses you have during the plan year while you are contributing to the account. If you have unused contributions at the end of the plan year, those contributions will not carry forward and will be forfeited.

For 2024

• The funds you deposit for 2024 must be used by the end of the grace period
  (March 15, 2025), or you will forfeit any unclaimed balance.

• You must file claims for 2024 expenses by April 30, 2025.
  

For 2023

• The funds you deposit for 2023 must be used by the end of the grace period
  (March 15, 2024), or you will forfeit any unclaimed balance.

• You must file claims for 2023 expenses by April 30, 2024.

If you do not file claims by the deadline, you forfeit any money left in your account. This is an Internal Revenue Code (IRC) rule and LAwell cannot make exceptions. You may be able to make a limited change if you have a qualifying life event. For the DCRA, certain changes to your day care provider or the cost of care may also qualify as an eligible change event, subject to approval of LAwell.

Filing Claims

Generally, you pay eligible healthcare and dependent care expenses out of your pocket first, then file a claim with documentation of your expenses in order to be reimbursed from your account.

As long as you file claims regularly, you can receive reimbursement promptly. Generally, you receive a reimbursement check within two weeks for a paper claim or one to two days for an online claim. For claim forms, go to wageworks.com. You can also submit claims and upload receipts online, and pay your provider directly for some services, using the “WageWorks EZ Receipts” mobile application. Download the free mobile app in the iTunes Store or Google Play.

If Your Employment Ends

If you leave your employment with the City mid-year – including transfers to the Department of Water and Power (DWP) – you can file HCFSA claims and receive reimbursement only for expenses you have up to the date your LAwell benefits end, and you will forfeit any additional amount left in your account. For more information on when benefits end, refer to the Life Events section. You may be able to continue a HFSA and/or the DCRA under COBRA if your employment ends, with some limitations. Employees who terminate employment, retire, or transfer to DWP and then subsequently return to the City within the same calendar year may have their account re-established based on their prior elections, subject to review and approval by LAwell and subject to applicable Internal Revenue Code rules.

Use the HCFSA to pay for eligible healthcare expenses that are not covered by any medical, dental, or vision coverage. Generally, eligible healthcare expenses may be claimed only for expenses incurred during the period when you are enrolled in a City-sponsored medical plan. You may use an HCFSA for healthcare expenses of:
• Your spouse and any child you claim as a dependent on your tax return.
• Anyone who is your “health plan tax dependent” as defined by the IRS.

Visit healthequity.com/fsa-qme to view a searchable list of HCFSA eligible expenses

Examples of Eligible and Ineligible Expenses

HCFSA and Healthcare Savings Accounts (HSA)

LAwell does not offer a high deductible health plan and the HCFSA offered through the LAwell program is not established as a HSA-compatible option. If you are enrolled in a high-deductible health plan with your spouse/domestic partner, former employer, or other organization you should consult with your tax advisor before enrolling into LAwell’s HCFSA. Enrolling in an FSA is considered an irrevocable election; see “Important Deadlines and Restrictions” section above for more information.

Estimating Expenses and Tax Savings

To estimate your annual expenses and the tax savings of setting up a HCFSA, log into your Benefits Central Portal account. As part of the enrollment process, you’ll find links to a calculator for each account.

Debit Card

You will automatically receive a debit card to use for eligible healthcare expenses at any provider or retailer that accepts debit cards. The debit card is an additional convenience option and is not intended to replace the traditional claim process. Some eligible healthcare expenses may not be available through the debit card and will only be eligible through filing a traditional claim. There is no debit card option for the Dependent Care Reimbursement Account.

 You can use a DCRA for day care expenses you have for your eligible dependents while you and your spouse work or go to school full-time. Your eligible dependents are:

• Children under age 13 you claim as dependents on your tax return.

• Anyone age 13 or older who meets the IRS definition of “health plan tax dependent,” lives with you more than half the year, and is physically or mentally unable to care for themselves. This may include an elderly parent or disabled dependent.

Generally, dependent day care expenses may be claimed only on days you work. There are exceptions. For a short absence, such as a minor illness or vacation, day care expenses may be claimed if those expenses are paid on a weekly or longer basis. In addition, if you work part-time, expenses may be claimed if you are required to pay a fixed rate – such as a full weekly rate – rather than paying for only the time you are working.

To be reimbursed, day care must be provided by a person for whom you can provide a Social Security Number or day care facility with a Taxpayer Identification Number. Day care provided by any sitter who you or your spouse claims as a dependent on your tax return cannot be reimbursed through your account. This includes day care services provided by your children or stepchildren under age 19. In addition, day care provided by your spouse or former spouse is not eligible for reimbursement.

How Much You Can Set Aside

Generally, you can set aside from $600 up to $5,000 (maximum amounts subject to federal law revision) annually. Your contributions come out of your check each pay period. The total amount you can set aside may change depending on your tax filing status and whether your spouse’s employer offers a similar DCRA. If you and your spouse both work, your maximum contribution cannot be more than the income of the lower-paid individual – you or your spouse – and cannot exceed $5,000.

Dependent Care Reimbursement Account & Taxes

As you consider a DCRA, think about what works best for you – the reimbursement account or the dependent care tax credit provided by federal law. It is important to keep in mind that you cannot take the tax credit for any amounts that are reimbursed through a reimbursement account. In some cases, the tax credit may provide more savings than a reimbursement account. Generally, you will save more on federal taxes using a DCRA in these situations:

• You are eligible for the Earned Income Tax Credit. You are eligible for the credit if you have less than $10,000 in investment income and your income (or the income of you and your spouse, if you are married filing jointly) is less than the amount set forth for 2024, depending on your number of children.

• You are single, you file your taxes as head of household, and your household taxable income is approximately $42,000 or more (assuming one dependent).

• You are married, you file a joint return, and your household taxable income is approximately $48,000 or more (assuming one dependent).

Dollar amounts are based on federal tax law applicable for when you are filing taxes in 2024 for the 2023 tax year. These are just guidelines and do not take into account state taxes. If you have questions about tax savings, please consult a tax advisor.