Pre-Tax Expense Accounts: Forfeiture Possibility

If you have a Pre-Tax Expense Account, remember that September 15, 2008 will be the final day on which you can incur eligible expenses for the 2007-2008 plan year, and you must submit claims for all expenses by September 30. For more information about these deadlines, see below. For a list of eligible expenses, visit the Health Care and/or Dependent Care account pages. Instructions on filing a claim are available here.

Because of the special tax benefits associated with pre-tax expense accounts, there are some strict government rules for what happens to any money left in your accounts at the end of the year.

Specifically, any unused balances left in your accounts at the end of the grace period (after expenses incurred during the plan year have been processed) will be forfeited. This feature is referred to as the “use it or lose it” provision. It is required by federal regulation.

Penn’s benefit plan year runs from July 1 through June 30. The Pre-Tax Expense Account contributions you make during the plan year can be used for expenses you incur within that year… as well as through September 15 following the end of that year. Essentially that means you have an additional two and a half months to incur expenses each plan year.

It’s also important to remember that you must submit your claims by September 30 following the end of the plan year in order for them to be accepted.

You can access your pre-tax expense account details, including balances and the status of claims you have submitted, securely online through Penn’s online benefits enrollment site. Just login with your PennKey and password, continue until you reach the “Enrollment Options” page, and click the link titled “Access Your Pre-Tax Expense Accounts”.

Plan Year in which Contributions Made:	Incur Expenses By:	Submit Claims By:
July 1, 2007 – June 30, 2008	September 15, 2008	September 30, 2008
July 1, 2008 – June 30, 2009	September 15, 2009	September 30, 2009

In deciding how to use your pre-tax expense accounts, you should make careful estimates of the eligible expenses you expect to incur during the plan year. A good place to start is with last year’s expenses. Choose an annual contribution amount you think is reasonable. Then, decide how much of these totals you will contribute from each paycheck. That is the amount you want the University to withhold from each paycheck, before that money is subject to federal income and Social Security taxes.

If you are uncertain as to what your expenses might be, make a conservative estimate to minimize the risk of a forfeiture.

Remember also that the money you place in the pre-tax expense accounts is sheltered from Social Security and federal income taxes only, and is still subject to state and city taxes. You will be able to make plan changes and contribution changes only if you have a qualifying change in family status, the plan changes desired are consistent with the family status change(s) and the changes are requested within 30 days from the qualifying change.

A complete list of eligible and ineligible expenses is available from the Internal Revenue Service. IRS Publication 502 contains information on eligible health care expenses. Publication 503 covers eligible dependent care expenses. You can request these publications from your local IRS office (listed in the blue pages of your telephone book under U.S. Government Offices) or by calling toll-free, 1-800-829-FORM. For the most current federal tax information, please refer to the Internal Revenue Service’s web site at http://www.irs.gov.

The following pages provide a summary of the expenses allowed by the IRS under each account. If you have a question on the eligibility of a particular expense, call ADP (the University's Pre-Tax Expense Account administrator) at 1-888-PENN-BEN (1-888-736-6236).