Flexible Spending Accounts (FSAs) are popular employer-sponsored benefits. In 2016, nearly half of all employees who worked for private companies had access to an FSA. Here are some 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 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 those funds. Then you use the money to pay for medical expenses for yourself and your family members.
You can use a healthcare FSA to pay for many medical, dental or vision expenses that you would normally pay for out-of-pocket. An FSA typically covers qualified expenses such as deductibles, coinsurance, or co-payment amounts for your health plan; corrective eyewear, including contact lenses; dental work and orthodontia; medical equipment; hearing aids; chiropractic care; and more.
Many over-the-counter (OTC) items are eligible for reimbursement from an FSA. There are some restrictions, though. Here’s an overview:
For a list of eligible expenses, see IRS Publication 502.
Qualified dependents are your spouse or someone you can claim as an exemption for federal income tax purposes.
You can sign up for an FSA only during the open enrollment season.
In 2019, the annual contribution limit for healthcare FSAs is $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, then each payday, your contributions will be deducted pre-tax from your paycheck in equal amounts. Employers may also contribute to employee FSAs.
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 will 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.
Yes. The annual contribution limit is per person. Therefore, you could each contribute the maximum $2,700 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 and can only be used for qualified dental and vision expenses. You cannot “double dip” with an LPFSA; in other words, you cannot get reimbursement from your HSA and your LPFSA for the same expense.
No. One major difference between an FSA and HRA is how each account is funded. With an FSA, the employee typically funds the account. With an HRA, only the employer funds it; employees are not allowed to contribute. Plus, the employer chooses which expenses are eligible for reimbursement. Each HRA plan is different, depending on the employer. If you have an HRA, see your HR representative for more information.