A benefits Plan that allows employees select from a pool of choices, some or all of which may be tax advantaged. Potential choices include cash, retirement plan contributions, vacation days, and insurance. Also called cafetaria plan.
This is actually US based companies pay roll and compensation practice model which provide eligible employees the right to allocate salary dollars - pretax - towards payment of family health and dental insurance premiums, as well as out-of-pocket medical, dental, vision care and child care expenses. This pre-tax allocation provides you with 26% to 42% tax savings on your qualified expenses! Many employers also provide added benefit dollars, which you allocate pre or post-tax towards your choice of these or other benefits currently available to you through the plan.
In principle, the Flex Plan functions much like a personal expense account. By using an expense questionnaire, you determine expected out-of-pocket expenses for the period covered by your plan year, usually January 1 through December 31. You differentiate expenses-depending on your employer’s plan-for dependent care, elder care, or adoption assistance. Dental and health insurance premiums as well as other out-of-pocket medical, dental and vision care costs can also be covered pre-tax.
Throughout the plan year, you may submit vouchers, requesting reimbursement for the qualifying out-of-pocket expenses you incurred. You will then receive reimbursement as a tax-free check mailed directly to your home or direct deposit to your checking account. Premiums will be handled directly through your employer, pre-tax without need for reimbursement.
In every example, using pre-tax dollars to pay medical insurance premiums, co-payments and other qualified expenses, puts dollars in your pocket. This money would have been paid in unnecessary taxes.
Please see sample attachment...
17th February 2009 From Saudi Arabia