FSA Primer: Health FSAs, LPFSAs, and Dependent Care FSAs

Did you know that Flexible Spending Accounts (FSAs) aren’t just for healthcare expenses? In fact, there are three common variations to the FSA. Each has its own purpose, but they’re all employer-sponsored benefit accounts designed to help people save on their taxes while setting aside money for necessary expenses. Let’s take a look at Health FSAs, Limited Purpose FSAs, and Dependent Care FSAs.

Health FSA

Most people are familiar with a health FSA, also known as a general purpose FSA.  With a health FSA, you can use the set aside funds for hundreds of eligible expenses for yourself and your dependents (usually your spouse and children).

How does a Health FSA work?

Before the plan year begins, you elect how much money you want to contribute (up to $2,650 in 2018). Then your total is divided up into equal amounts and deducted from each paycheck throughout the year.

When you or your family has an eligible expense, you use these dollars to help cover the cost. Common eligible expenses include:

• Prescriptions
• Dental exams and treatments
• Eye exams and treatments
• Co-pays, co-insurance, and deductibles
• Emergency room visits
• First aid supplies
• Diabetic supplies (including insulin)

FSA Debit Card and Claims

Most FSA plans come with a benefits debit card that allows you pay for these products and services without having to file a claim. However, you can also file a manual claim with your benefits administrator.

It’s always a good idea to keep your receipts, EOBs, prescription paperwork, letter(s) of medical necessity, and other related documentation because you may need them to file a claim. You may also need these items if the IRS performs an audit.

Important Health FSA Information

One thing to keep in mind is the “uniform coverage rule,” which allows you to use your full annual FSA contribution on the first day of the plan year. You do not have to wait for that money to build up before it’s available. Once your available balance reaches zero, any remaining deductions will still come out of your paycheck until the end of the plan year.

You and your spouse can both have a health FSA, and the contribution limits are the same. There is no single versus family coverage with a health FSA.

Use It or Lose It, Grace Period, and Rollover

Depending on your employer’s plan, an FSA will have one of the following three spending options:

• Use it or lose it – Any funds that are not spent during the plan year are forfeited
• Grace period – You have up to 2.5 months after the plan year ends to spend any leftover funds
• Rollover – You can roll over up to $500 (depending on plan set up) to the following year

Limited Purpose FSA

A Limited Purpose FSA (LPFSA) shares many similarities with a general purpose Health FSA but has more restrictions. An LPFSA is available only for people enrolled in both a high deductible health plan (HDHP) and an HSA. By law, you cannot have a general purpose Health FSA and HSA at the same time.

LPFSA Contribution Limits and Eligible Expenses

Like a health FSA, the contribution limits are the same and the uniform coverage rule applies. However, you can only use an LPFSA for qualified dental and vision expenses, such as exams, prescription eye wear, crowns, fillings, etc.

It’s important to remember that double-dipping is not allowed. You cannot claim the same expense twice – once from your HSA and also from your LPFSA (or the other way around).

Use it or lose it, grace period, and rollover apply to your LPFSA; check your plan documents to see which spending option your plan has.

Dependent Care FSA

A dependent care FSA is one of the most popular benefit accounts, but unlike a health or limited purpose FSA, it is not used for healthcare expenses. Dependent Care FSA, or Dependent Care Assistance Plan (DCAP), is used only to pay for care for qualified dependents while you’re at work or school.

Dependent Care FSA Qualified Dependents

• Children under age 13
• A child dependent 13 years or older who is physically or mentally unable to care for themselves and spends at least 8 hours per day at your home
• An adult dependent (e.g., spouse or parent) who is physically or mentally unable to care for themselves and spends at least 8 hours per day at your home

Dependent Care FSA Contribution Limits

With a DCAP, you can contribute up to $5,000 for employees filing married, or $2,500 for those filing single or separate.

Unlike a health FSA or LPFSA, the uniform coverage rule does not apply to a dependent care FSA. You can only use your accrued balance at the time to cover your expenses.

Dependent Care FSA Eligible Expenses

You can use your DCAP to pay for:

• Before and after school care
• Day care, preschool, or Pre-K
• Summer day camps (overnight camps are not eligible)
• Adult/Elderly care programs
• Sick child care

Use It or Lose It

Dependent care FSAs do not offer rollover or grace period. If you do not use all of your pre-tax benefit dollars by the end of the plan year you will lose them.

Health FSA, Limited Purpose FSA, and Dependent Care FSA are the three big FSA types. Some companies may also offer a flexible spending account for adoption assistance or health premiums. Contact your HR department to find out more about which tax-advantaged benefit accounts your company may offer.