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Discrimination Testing

Written by Rachael Seida
Updated 4 hours ago

Because of the tax-saving nature of FSA, DCA and HRAs, the IRS wants to make sure that an employer’s plan does not favor company officers, owners, or other “highly-compensated” or “key” employees. This requirement is fulfilled through nondiscrimination testing. Ameriflex recommends running the testing at the beginning, middle, and end of all plan years, or if there are significant changes in employee count.

Steps

  1. From your Ameriflex account, click views 
  2. Click Nondiscrimination Testing
  3. Click Go To Nondiscrimination Testing Portal. You will need Microsoft Office 2003 and Macros Enabled, running on a Windows-based PC to use this portal.
  4. Click Format Table and fill out employee count and plan type, click ok
  5. Fill out the table on the first Data Entry tab with active employees as of today's date, click the Begin Test tab
  6. Answer questions, click Run Testing
  7. If applicable, fix any errors
  8. Click the Results tab to see if you've passed or failed
  9. Save a copy for your records. 
Note: If a plan fails, the results tab will provide instructions on what needs to be done to pass the test. This may include adjustments to employees’ contributions.
Ameriflex does not complete the discrimination testing for clients. Employers must furnish these results themselves, through our employer portal. We do not keep the results of the testing whatsoever. However, you should retain these results for your records.

What You'll Need:

  • NAMES
    Please provide the first and last names of all employees, including those excluded and ineligible from participating in the plan. If union employees are excluded from the plan you may eliminate them completely from testing.
  • PRECEDING PLAN YEAR SALARY
    Please list the employee's preceding plan year salary, or the current plan year in the case of the first year of employment. It is always better to overestimate when adding in a commission or bonus. You must list the salary for all employees, including those excluded and ineligible from participating in the plan.
  • % OWNER
    Please indicate the percentage of interest the employee has in the business. This information is used to determine who is a “Highly Compensated Employee.”
  • ARE THEY AN OFFICER?
    Whether an individual is an officer is determined on the basis of all the facts and circumstances, including the source of the individual’s authority; the term for which he or she is elected or appointed; and the nature and extent of the officer’s duties. Generally, an “officer” means an administrative executive who is in regular and continued service. It also implies a continuity of service, exclusive of those employed for a special or single transaction. An employee that has the title of “officer” but doesn’t have the authority of an officer is not an officer for these purposes. Sole proprietorships, partnerships, and associations, among other unincorporated entities, may have officers.
  • ARE THEY RELATED TO AN OFFICER OR OWNER?
    Please indicate only those who are immediate family members (i.e. father/mother, son/daughter, and grandparent).
  • FSA / DCAP / HRA INELIGIBLE EMPLOYEES
    Employees who have not met the eligibility requirements (i.e., a 90 day waiting period); any self-employed individuals as defined in section 401(c) of the Internal Revenue Code (including sole proprietors and partners in a partnership); and employees who own (or are considered to own within myameriflex.com
    the meaning of section 318 of the Internal Revenue Code) more than 2% of the outstanding stock of an S-corporation or stock possessing more than 2% of the total combined voting power of all stock of such corporation.
  • FSA / DCAP / HRA EXCLUDED EMPLOYEES
    Your plan can exclude the following for purposes of discrimination testing:
    - An employee covered by a collective bargaining agreement
    - A non-resident alien with no U.S. source of income, “leased employee” within the meaning of Section 414(n)
    - Employees who work less than __ hours per week (determined by the employer)
    - Employees who work less than __ months per year (determined by the employer)
  • CURRENT ELECTION FIELDS
    Please only fill out the categories that apply to your company. If your company only offers a health FSA but you still see DCA and HRA, you will need to reformat the table.
    - FSA – Flexible Spending Account
    - DCA – Dependent Care Account
    - HRA – Health Reimbursement Arrangement
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