Employers Offer New Pretax Perk
(WSJ p. D1)
Towers Perrin News Digest, 02 Sep 2003
As of last year, 74 percent of employers with 500 or more employees offered flexible spending accounts (FSAs), allowing employees to put tax-free dollars towards medical expenses. However, according to a human resources consulting firm only 18 percent of eligible employees have chosen to participate in such programs. Now the Internal Revenue Service has put out rules allowing debit cards to be linked to FSAs, significantly reducing the amount of paper work for the employee and encouraging employees to participate in their employer's FSA program. Under the traditional FSA program, employees contribute pre-tax dollars from their paychecks to an account and can submit forms to be reimbursed for medical expenses. The downside is that the paperwork can be tedious and it can take weeks for the reimbursement to come through. For employees whose employers have decided to offer the debit card option, there are no more claims forms and no more waiting for reimbursement; money is deducted instantly from their FSA to pay for a co-payment or prescription. So far, fewer than 400,000 employees with FSAs have debit cards, but Consumer Driven Market Report predicted that around 1.5 million employees will have them by next April. Ahold USA reported that it was able to more than double the participation rate in its FSA program this year, increasing its tax savings by reducing the amount it had to pay for Social Security and Medicare.