With the average American household spending $5,000 per person in healthcare expenses each year, it’s no surprise that Flexible Spending Accounts (FSAs) are so popular. In 2016, nearly half of all employees who worked for private companies had access to an FSA. The employer-sponsored benefits account can save you a lot in healthcare costs. To learn more, check out the following FSA FAQs.
A healthcare Flexible Spending Account (FSA) is an employer-sponsored, tax-advantaged benefit account for employees. Through an FSA, you can withhold pre-tax dollars from your paycheck to cover out-of-pocket healthcare expenses. You can use the money for yourself and your qualified dependents.
The primary benefit of an FSA is tax savings. You contribute to the account on a pre-tax basis, meaning you pay no Federal, FICA, or State taxes on the set aside funds. Then you can use the money to pay for medical expenses for yourself and your family members.
You can use a healthcare FSA to pay for medical, dental or vision expenses that you would normally pay for out-of-pocket. Common FSA-eligible expenses include:
There are also many over-the-counter (OTC) items are eligible for reimbursement from an FSA. Here’s an overview:
For a list of eligible expenses, see IRS Publication 502.
Your qualified dependents are typically your spouse or child; or someone you claim as an exemption on your federal income tax.
You can sign up for an FSA during the open enrollment season. If you are a new hire, you may be able to sign up for an FSA within 60 days of your hire date.
If you have a qualifying event, such as a new baby or adoption, you may be able to enroll then. Contact your HR department for plan details.
For 2020, the IRS annual contribution limit is $2,750. This is an increase of $50 from 2019 ($2,700).
During enrollment season, you choose how much you want to contribute to your FSA (up to the annual limit). Your annual election amount will be divided by how many pay periods are in the year; each payday, your contributions will be deducted pre-tax from your paycheck in equal amounts.
Employers may also contribute to employee FSAs. If that happens, the combined contributions (yours plus the employers) cannot go over the annual limit.
In most cases, no. However, if you have a qualified life event, you may be able to. Qualified events include:
Talk to your HR or benefits administrator for clarification.
Most FSA plans offer an account-linked benefits debit card. You can use the debit card when you make a purchase for an eligible expense at a pharmacy, a doctor’s office, online, or another location.
If you do not have or cannot use your debit card, you can pay out-of-pocket, then submit a claim for reimbursement to your plan’s administrator. Be sure to keep itemized receipts and other related documents for your claim. Non-itemized cash register receipts, credit card receipts, and cancelled checks cannot be used to validate a claim.
If you submit a claim for reimbursement of a non-eligible expense, your administrator should deny the claim.
If you used your benefits debit card and the expense is deemed ineligible after the transaction, you must reimburse your FSA account for that amount. You may be required to pay income taxes if you do not reimburse the account.
Depending on your employer’s plan setup, there are three options:
Contact HR or your plan administrator to find out which option is in your plan.
No. If you are able to carry over $500, it does not count toward the annual contribution amount for the next year. For example, you could carryover $500 to 2020. Plus, you can also contribute the maximum $2,750. In total, you could have $3,250 to spend in 2020 towards healthcare.
Yes. The annual contribution limit is per person. Therefore, you could each contribute the maximum amount to separate FSAs through your respective employers.
No. Unlike a Health Savings Account (HSA), there is no health plan requirement to enroll in an FSA.
A healthcare FSA is used for healthcare-related items and expenses (see above).
A Dependent Care FSA, also known as a Dependent Care Assistance Plan (DCAP), is used for out-of-pocket expenses related to child or other dependent care.
With a DCAP, you can pay for child/dependent care services that allow you to be able to go to work or school. Typical expenses include day care, nursery school, before and after school care, summer day camps, and daytime elder care for legal tax dependents. The annual contribution limit for DCAP is $5,000.
For a Dependent Care FSA, the dependent must meet one of the following criteria:
No. You cannot transfer money between accounts. The same applies to HSAs and DCAPs.
A limited purpose FSA (LPFSA) is available for people who have an HSA; an LPFSA can only be used for qualified dental and vision expenses.
Keep in mind, you cannot “double dip” with an LPFSA. That means you cannot get reimbursement from your HSA and your LPFSA for the same expense.