Employee Reimbursement Accounts (ERA)
What is the Employee Reimbursement Account (ERA) program?
It is an optional benefit plan that allows eligible employees to contribute a portion of their income to an account that is used to pay eligible medical and dependent care expenses from pre-tax income. Contributions are made through payroll deduction. Federal, Social Security and state taxes are calculated on the income remaining after subtracting the contribution. The result is increased take-home salary due to reduced taxes. The program is an authorized Flex Spending Account under Section 125 of the Internal Revenue Code and Wis. Statute 40.85. Enrollment is necessary to participate.
Who should enroll in the program?
Consider enrolling if you anticipate out-of-pocket medical expenses such as deductibles, co-payments or expenses not covered by the Health, Dental and Excess Medical (EPIC) or DentalBlue (Dentacare) plans and/or if you or your spouse will incur dependent-care expenses as a result of employment or attending school fulltime.
Can the same savings be achieved by itemizing medical expenses and using the child-care credit when filing income tax returns?
To realize tax savings when filing income tax returns, itemized medical expenses must exceed 7.5 percent of adjusted gross income. Most of us do not qualify. Participating in ERA assures tax savings as eligible expenses are paid with pre-tax income. Middle-to upper-income employees usually find the ERA dependent care benefit provides larger tax savings. However, lower-income employees usually receive larger savings using the child-care tax credit. Important: Reimbursements from contributions to your ERA account cannot be claimed on your tax return.
How do you determine the amount to contribute?
The ERA booklet provides information about minimum and maximum contribution amounts and has worksheets to assist in your calculations.
Other references for determining out- of-pocket expenses may include the Dual Choice Booklet, the Dental and Excess Medical (EPIC) or DentalBlue (Dentacare) brochures, if enrolled in these plans. Contact the plans directly if you require clarification. Finally, refer to the ERA booklet to determine if the expense is covered by ERA. It is very important to correctly calculate your contributions, as IRS regulations stipulate that any amount remaining in your account for one plan year (calendar year) may not be returned to you or carried forward to subsequent years.
When and how do I enroll?
Eligible new employees, transferring employees or reclassified employees must enroll within 30 days of employment to participate in the current plan year. Benefit coordinators can provide brochures and enrollment forms. Paper enrollment is required. Annual re-enrollment is required for participation in subsequent plan years.