‘When Can I Sign Up for an FSA?’ and Other FSA FAQs
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.
FSA FAQs
What is a Healthcare Flexible Spending Account or Healthcare FSA?
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.
What are the benefits of having an FSA?
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.
What are “qualified” expenses?
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:
- Eligible items – Insulin and healthcare products that do not contain any medicine or drugs. This includes non-medicated bandages, contact lens solution, hearing aid batteries, diagnostic and testing products, reading glasses, etc. These products do not require a prescription, letter of medical necessity or doctor’s directive to be FSA-eligible.
- Eligible with a Prescription – OTC items that contain a drug or medication. Examples of items that require a prescription include diaper rash creams and ointments, cold and allergy medicines, laxatives, pain relievers, sleep aids, etc.
- Eligible with Letter of Medical Necessity (LMN) or a Doctor’s Directive – Items that require a letter of medical necessity or doctor’s directive are those that can be used for a specific medical condition or for general health purposes. These include products and services such as massage therapy, athletic shoes, fiber and weight loss supplements, vitamins, air purifiers, sitz baths, and support hose, among others.
For a list of eligible expenses, see IRS Publication 502.
Who are qualified dependents?
Qualified dependents are your spouse or someone you can claim as an exemption for federal income tax purposes.
When can I sign up for an FSA?
You can sign up for an FSA only during the open enrollment season.
How much can I contribute to my healthcare FSA?
In 2019, the annual contribution limit for healthcare FSAs is $2,700.
How do I fund my FSA?
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.
How can I access my funds?
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.
What happens if I use my FSA for a non-eligible expense?
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.
What happens if I don’t use all the money in my account?
Depending on your employer’s plan setup, there are three options:
- Forfeiture (also known as ‘use it or lose it’) – If you don’t use all the funds by the end of the plan year, then you lose the remaining balance.
- Carryover – You can carry over up to $500 in unused funds to the next plan year. The maximum amount is determined by your employer.
- Grace period – You have 2.5 months in the new plan year to spend any leftover FSA money from the previous year.
Contact HR or your plan administrator to find out which option is in your plan.
Can both my spouse and I have an FSA at the same time?
Yes. The annual contribution limit is per person. Therefore, you could each contribute the maximum $2,700 to separate FSAs through your respective employers.
Do I have to be enrolled in a healthcare plan to elect an FSA?
No. Unlike a Health Savings Account (HSA), there is no health plan requirement to enroll in an FSA.
What’s the difference between a healthcare FSA and Dependent Care 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:
- Under age 13 and for whom you would be entitled to a deduction under IRS Code 151(c); or
- The dependent is physically or mentally unable to care for him/herself; or,
- Your spouse who is physically or mentally unable to care for him/herself
Can I transfer money from my Dependent Care FSA to my healthcare FSA (or vice versa)?
No. You cannot transfer money between accounts. The same applies to HSAs and DCAPs.
What is a Limited Purpose FSA?
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.
Are healthcare FSAs the same as Health Reimbursement Arrangements (HRAs)?
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.
Learn more about other FSA FAQs, including understanding grace period and run-out periods, and lesser known FSA eligible expenses.