FLEXIBLE SPENDING ACCOUNTSmaking the most of your benefits

What is a Flexible Spending Account (FSA)?

A Flexible Spending Account allows you to pay for your family’s out-of-pocket medical and dependent care expenses with pretax income. You can electto deposit a part of your before-tax income to a personal reimbursement accountthat you use to pay for qualified expenses incurred during the plan year.Amounts you put into your FSA plan are deducted before federal, state andsocial security taxes are withheld.

How does the FSA plan actually save taxes? Amounts you contribute to an FSA are not considered income – that’s why

you don’t have to pay taxes on it (ever!). But the rest of your income is subjectto taxes – taxes that eat up 20 to 40% of your paycheck. Since you are currentlypaying for medical or day care expenses with after-tax money, using the FSAplan for these expenses will make your income go a lot further.

An Example:

Sam’s Out-of-Pocket Medical Expenses

Copays $ 400Vision (glasses) 220Dental (braces) 1,200

Total per year $1,820

Let’s see how using a medical FSA can help save taxes for Sam and hisfamily.

With FSA Without FSASam’s gross annual pay $25,000 $25,000Less: pretax FSA deduction - 1,820 -0- Taxable income $23,180 $25,000Income and FICA taxes withheld - 2,777 - 3,250Net pay $20,403 $21,750Plus FSA reimbursement + 1,820Disposable income $22,223 $21,750

Sam’s net pay is lower with the FSA. But don’t forget when he turns in anexpense claim, that money will be there for him — tax free. That adds almost$500 to Sam’s disposable income by the end of the year! This example assumesSam is in the 15% federal tax bracket. Your tax savings will depend on yourpersonal situation and individual tax bracket.

Sam’s family will have expenses foroffice visit and prescription copays thatwill be at least $400 this year. Inaddition, his wife plans to get neweyeglasses that will cost $220. Andpayments on his son’s braces will cost$1,200 this year. So Sam knows he willhave at least $1,820 in medical expensesin the coming year.

Dumb Question:

Would you like tospend more of yoursalary on yourself, oron income taxes?

Smart Answer:

Use your company’sFlexible SpendingPlan to keep more ofyour pay and giveup less to taxes.

Before you even touch your

paycheck, income taxes come

out first. Your disposable

income is what’s left after

taxes have been deducted. If

you can find a way to make

some of your income tax-free,

you are dollars ahead because

you give up less of your salary

to taxes.

How does the plan work?

Easier than you think. First, you decide how much to set aside in amedical and/or dependent care account for the plan year. Your annualelection is divided by the number of pays in the year and deducted equallyfrom each pay before taxes are taken out. Your contributions are depositedinto your FSA account and returned to you tax free when you submit claims.

How do I get money from my account?

Simply submit a completed claim form (available from your employer oronline at www.FlexNEO.com) with a copy of the medical or dependent carereceipt showing the amount of expense and date of service. NEO willreimburse you directly by check or direct deposit to your bank account.

Can I change my election during the plan year?

You can only join the plan during open enrollment just prior to thebeginning of the plan year or when you first become eligible. You may be ableto change your Medical FSA election during the plan year if you experiencea “change in status” event (see list at left) and if the change in election isconsistent with the event . The Dependent Care FSA is very flexible! You maychange that election because of a change in status event, or if you have achange in the cost or care provider.

What if I don’t use all the money in my account?

You want to plan carefully when making your election. Make yourelection based on the expenses you know you will incur during that planyear. Qualified expenses are those incurred in the current plan year.(Expenses are “incurred” on the date the service is rendered, not the date theexpense was billed or paid). If you have unused money at the end of the year,IRS regulations say that it must be forfeited. You will have 90 days after theend of the plan year to submit claims for expenses incurred in the prior year.Use the worksheets on the back of this booklet to estimate your out-of-pocketexpenses in the coming year.

How can I get more information during openenrollment or after I enroll?

The best source for information is on ourwebsite at www.FlexNEO.com. Use the SavingsCalculator page to get an instant estimate of whatyour tax savings would be if you used the plan.After you enroll in the plan you can access your account informationthrough a secure site to check account balances, pending claims andpayments. Or contact NEO by phone, fax or email. Our complete contactinformation is on the back of this brochure.

What is an eventthat may allowme to changemy electionmid-year?

The following “changeof status” events maypermit an employee tochange his FSA electionoutside of openenrollment:

A change in the employee’s legalmarital status.

A change in the number of taxdependents.

Termination or commencementof employment by the employee,spouse or dependent.

A change in employment statusthat results in gaining or losingeligibility for health coverage.

Medicare or Medicaidentitlement for the employee,spouse or dependent.

A change in cost or coverage(for Dependent Care accountsonly).

There may be other events thatqualify. Current IRS regulations willgovern whether an event allows achange in election.

This publication is intended to provide accurate and authoritative information on the subject matter covered. It isdistributed with the understanding that the publisher and distributor are not rendering legal, accounting, or otherprofessional advice and assume no liability in connection with its use.

Make your

paycheck

STRETCH

further…

QUALIFIED MEDICAL EXPENSES: Any medical/dental/optical expense incurred during the plan year for you,

your spouse or dependents may be paid through your medical FSA, such as:

This list is not comprehensive. They are merely examples of typical expensesallowed under a Medical Reimbursement Account. Internal Revenue Code 213defines expenses eligible for reimbursement.

MEDICAL EXPENSES NOT ALLOWED:-Any expense which has been reimbursed by insurance or another third party.-Any expense incured prior to your participation in the plan.-Any medical procedure if it is for cosmetic purposes only (such as liposuction, hair transplants,face lifts, teeth bleaching, etc.).-General wellness/fitness programs, such as Heath Club Dues.-Insurance premiums and Long Term Care Coverage may not be paid through a medical FSA.-Vitamins, nutritional supplements, and herbal compounds

Special Note about Medical FSAs: Medical claim requests will be paid up to your annualelection at any time during the plan year, regardless of the amount you have contributedso far. This feature allows you to be able to budget your medical expenses over the courseof the year, but have the money to pay the doctor when you need it!

QUALIFIED DEPENDENT/CHILD CARE EXPENSES: Expenses for the care of a dependent to enable you (and your spouse if

married) to be gainfully employed. Up to $5,000/year can be paid through yourDependent Care FSA.

• Day care or babysitting for your child under age 13.

• Services can be provided in your home, or in another location (like a day care center).

• Service must be for the physical care of your child, not for education.

• Qualified expenses include costs for adult day care (like a spouse or dependentparent). The adult dependent must reside with you and regularly spend at least 8hours per day in your home.

• Your election cannot be greater than your spouse’s income or one half your income,whichever is smaller.

• You must supply the care provider’s name, address and Employer Identification Numberor social security number with your reimbursement claim.

• You will be reimbursed up to the current balance in your account when submittinga claim.

If you are going to

incur expenses like

these in the

coming year, it

makes sense to pay

them with PRETAX

dollars!

AcupunctureAlcohol/drug treatmentAmbulance Birth control pillsBlood pressure monitoring devicesBody scansChiropractorsChristian Science practitionersContact lenses and solutionsDeductibles and copaysDenturesDiabetic supplies and insulinDrugs & medicinesEmergency room copayEye exams and eyeglassesFertility treatment/drugs

Guide dogHearing exams and hearing aidsLab feesLasik eye surgeryLearning disability tuitionLegal abortionObesity program feesOffice visit copaysOrthodontiaOxygen Prescription drugs and copaysPrescription sunglassesPsychological counselingSmoking cessation programVaccinesVasectomy

NEO Administration Company1735 Merriman RoadAkron, OH 44313800-775-3539330-864-0690 (in Akron)E-mail: admin@FlexNEO.comwebsite: www.FlexNEO.com

Still have questions?

Call or E-Mail us! We

can answer your

questions about your

personal situation

and give you a better

idea of how FSAs can

benefit you.

Or log onto

our website at

www.FlexNEO.com

for more information.

Medical ReimbursementAccount Worksheet

Refer to the list on the prior page. Listexpenses you expect to incur for yourself andyour family in the coming year that WILL NOTBE PAID BY INSURANCE.

Medical Doctor’s Visits $

Well Child Care

Annual Exams & Physicals

Immunizations

Hospital Costs

Prescription Drugs

Hearing Aids and Batteries

Other

Dental Cleanings and Exams

Fillings and Restorative Work

Orthodontia (Braces)

Vision Eye Exams

Eyeglass Frames & Lenses

Contact Lenses and Lens Solution

RK/Laser surgery to correct vision

Miscellaneous

Total $

Dependent/Child Care Reimbursement Account WorksheetOnly expenses incurred to enable you to work qualify. IRS limits the

dependent care account to $5,000/family, or $2,500 if married filing separately.Your election is further limited to the lesser of (1) your earned income, or (2)your spouse’s earned income. Thus, if your spouse is not employed, you cannotuse the account unless your spouse is a full time student or disabled.

Day Care and Babysitting $

PreschoolAfter School Care ProgramsDay CampOther Eligible CareTotal $

Should you use the FSA, or take a child care crediton your tax return?

The same dependent care expenses that qualify for the FSA are eligible fora federal income tax credit. You cannot use both tax advantages for the sameexpenses, though you may be able to take a tax credit for expenses you do notpay through the FSA. Other tax credits, such as the Earned Income Credit (EIC)can be affected by using the FSA. Depending on your income level, the EIC mayeither increase or decrease if you make salary reductions to contribute to the FSAplan. Consult a tax advisor to confirm which would be best for you.

FSA Form (Rev. 08/03)