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IRS Rules Governing Spending Accounts

Complying with Federal Tax Rules

​​​​​​Health Care and Dependent Care Spending Accounts are allowed by Section 125 of the Internal Revenue Code and certain restrictions apply.

  • Determine which account(s) to join and how much to contribute prior to each plan year.
  • You cannot change your contribution amount once you have elected it. The amount of pretax dollars you choose remains in effect for the entire year. You can adjust your contribution only if you have a change in family status, such as the addition or loss of a dependent, or a change in marital status. But you can elect a different amount each year.
  • Health Care and Dependent Day Care accounts are separate. Funds may not be transferred between the two, nor can health care expenses be reimbursed from a Dependent Day Care account, or dependent day care expenses from a Health Care account.
  • If you do not use it, you lose it: the IRS requires that you forfeit any unused account balances remaining at the end of the year. You can use expenses incurred through March 15 of the following year. Claims must be received by March 31 or you forfeit the unused balance. Claim denials have an additional 180 days to send in the required documentation.
  • Expenses reimbursed from Health and/or Dependent Day Care accounts cannot be claimed as deductions or credits on income tax returns.
  • You cannot withdraw funds without an eligible claim.
  • Dependent Day Care Flexible Spending Accounts vs. IRS Tax Credits.

As an alternative to a Dependent Day Care Flexible Spending Account, the IRS provides tax credits through the Child and Dependent Care Credit (Topic 602) if you rely on dependent day care in order to work.

You can either participate in a Dependent Day Care Flexible Spending Account or receive IRS tax credits, but not both. So you need to determine which tax-saving option is most beneficial for your family. Compare the advantages by calculating approximately how much you will reduce your taxes with each method. Your decision depends on your overall childcare expenses, your household income and filing status.

To find out if you qualify for the Child and Dependent Care Credit (Topic 602) and to learn how to calculate your tax savings, visit the IRS Web page on Topic 602 , or call the Internal Revenue Service toll-free, 1-800-829-1040, for assistance. Visit the IRS website at irs.gov

Insufficient funds

If your reimbursement request exceeds your available account balance:

Health Care — you receive reimbursement up to your annual election amount, even if you have not yet contributed the full amount to your account.

Dependent Day Care — we send you a partial payment, whatever is in your account, and automatically reimburse you for the rest of your claim as we receive additional contributions to your account. We do so until the expense is fully paid or contributions for the plan year stop. You will not need to resubmit that claim.

 Benny Card

Benny card picture

Oklahoma has now joined a growing number of companies who are offering an alternative: Debit Cards that withdraw money directly from your flex account. For example, suppose you owe your doctor a $20
co-payment. Instead of writing a check and filing a claim for reimbursement, you would simply give your debit card to the Doctor's office administrator.

State Employees taking advantage of the new debit card on their Employees Benefits Council Flexible Spending Account, still need to hold on to those receipts. You'll need them in case the Plan administrator challenges an expense.​

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 Stocking Your Account

​​The recent changes don't address the most challenging aspect of establishing a flex account: figuring out how much you'll spend on medical and dental costs in the next year.

Coming up with an estimate isn't hard at all. If you take medication for an ongoing condition, such as high blood pressure, you know how much those pills cost you every month.

If you're still worried you won't spend all the money, put aside a modest amount at first. You can always boost your contribution next year. 

Our Best Advice, "Start small, but start".