How does a Section 125 Flex Plan program work?

By enrolling in a Section 125 Flex Plan program, an employee chooses to redirect his/her salary in an amount sufficient to pay for allowable medical and/or dependent care expenses incurred throughout the year. These elected amounts are redirected from the employee’s salary before it is subject to Federal Income, Social Security and Medicare taxes (FICA) as well as State Tax. The redirected amounts are placed into a spending account, one for medical expenses and the other for dependent care expenses. Then, as the employee incurs a qualifying expense (e.g. a day care bill, a prescription drug co-pay), he/she submits a claim to the plan administrator (S & A), who processes the claim and reimburses the employee from the money set aside in his/her Flexible Spending Account (FSA). The employee is using “un-taxed” salary to pay for expenses that he/she would have incurred even if the salary was not redirected into a FSA!