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Deductions & credits
Health care flexible spending account plans (HFSA) and dependent day care flexible spending account plans (DFSA) are subject to Internal Revenue Code nondiscrimination requirements. Under the Code, HFSAs and DFSAs must not discriminate in favor of highly paid and key employees (the term Highly Compensated employees is also used - HCE). If the employer fails the test portions that were not taxable become taxable. There is no way to prevent this because the testing is supposed to be done annually by the employer and until it does the test it has no way of knowing whether it passes or not and if not how much gets taxed. A similar test is also applied to employer retirement plans.
‎January 9, 2024
8:00 PM