FSA Flexible Spending Arrangement
Health Flexible Spending Arrangements (FSAs) carryover amount. Your employer may choose to change your cafeteria plan to allow you to carry over up to $500 of unused amounts remaining at the end of the plan year in a health FSA to be paid or reimbursed for qualified medical expenses incurred during the following plan year. For more information, see Balance in an FSA under Flexible Spending Arrangements (FSAs), later.
FSA – Flexible Spending Arrangement
The Health FSA allows your employees to use pre-tax deductions from their paychecks, or employer funding, to pay for any qualified health expense. Participant elections are made once per year, during the open enrollment, or when a qualifying life event is met. Unused amounts at the end of the plan year are forfeited to the plan – the infamous Use-It-or-Lose-It rule. Qualified expenses include medical, dental, vision, and prescription costs. Other expenses, like over-the-counter drugs, can be eligible with a doctor’s approval.
- Limited Purpose FSA: Eligible to reimburse only dental and vision expenses
- Post-Deductible FSA: Reimburses dental and vision expenses only, until the IRS statutory deductibles are met where it converts to a full FSA, able to reimburse all FSA eligible expenses
- Combination Limited Post-Deductible FSA: Reimburses dental and vision expenses; after the IRS statutory deductibles are met, eligible to reimburse all FSA expenses
Defining an FSA
Contributions Are Deducted Each Pay Period. With an FSA, you elect to have contributions deducted from your paycheck, in equal installments, until you reach the yearly maximum that has been specified.
Immediate Tax Savings. The dollars deducted from your paycheck that go into your FSA will not count as taxable income.
- Medical Expense Reimbursement. A Healthcare FSA allows the reimbursement of any qualifying medical expenses that were paid for out-of-pocket.
- Limited Purpose Medical FSA & Limited FSA. A Limited Purpose Medical FSA works with a qualified, high-deductible health plan (commonly known as HDHP) and a Health Savings Account (HSA). A Limited FSA will only reimburse for vision and dental expenses.
- Dependent Care FSA. Reimbursements of dependent care expenses for eligible dependents, like daycare, are allowed by a Dependent Care FSA.
- Enjoy Tax Savings.
- Fast, Easy Access to Funds. Using your prepaid benefits card or requesting to have funds directly deposited to your bank account, quick and easy access to your funds is possible.
- Reduce Filing Hassles & Paperwork by Using Your Prepaid Benefits Card.
- 24/7/365 Secure Access to Your Accounts on Our Consumer Portal.
- User-Friendly Mobile App. Manage your FSA at any time, file claims, stay up to date on balances and action required, and get one-click answers to benefits questions.
FSA Savings Example
What is a Flexible Spending Account (FSA)?
An FSA is an employer-sponsored plan that allows you to deduct dollars from your paycheck and deposit them into an individual account that’s protected from taxes. FSA accounts are exempt from federal taxes, Social Security (FICA) taxes, and, in most cases, state income taxes. The money in an FSA can be used for eligible health and/or dependent care expenses that are incurred while you are participating in the plan.
When does my FSA become effective?
Your FSA becomes effective on the date you enroll. Unlike other plans, an FSA does not start on your hire date. Contributions to your account begin as soon as administratively possible after you enroll.
How do I participate in an FSA?
To participate, you must enroll within 31 days of your date of hire or elect to participate during annual Open Enrollment. If you have a life event change (for example, birth or adoption of a child), then you may be able to enroll without waiting for annual Open Enrollment if you enroll within 31 days of the change.
Who can put money in my FSA?
You and your employer, although employers rarely contribute to employees’ FSAs.
What does it mean to incur expenses?
The IRS considers expenses to be “incurred” at the time you receive medical care or dependent care–not when you are formally billed or pay for services. Only eligible expenses you incur within the plan year, including any employer-allowed grace period, are eligible for reimbursement.
Who qualifies as an eligible dependent?
An eligible dependent is any dependent for which an employee pays a provider to care for him/her while they are at work or looking for work. The dependent must be under the age of 13 or incapable of taking care of themselves and live in the employee’s home for more than half of the year.
How often can I request reimbursements?
Reimbursements can be requested as often as a qualified expense is incurred. Expenses must be incurred during the plan year, and the reimbursement must be requested before the end of the run-out period (or grace period if applicable)
What happens if I have money remaining in my account at the end of the year?
The FSA Grace Period allows you to have an additional 2 ½ months after the end of the plan year to spend down money that is left in your FSA healthcare account. This means that you have until March 15, XXXX, to incur claims against your XXX FSA. This extension of time to incur expenses reduces the chance for any forfeitures, as every 12 month plan year is, in essence, 14 ½ months.
Only those who have FSA coverage through December 31, XXX can continue to incur claims against the 2017 plan year for services provided through March 15, XXXX.
All FSA claims for services provided January 1, XXXX through March 15, XXXX will automatically be applied and processed from the XXX plan year first if filed by the claims filing deadline for that plan year. If your claim exceeds the available funds from the XXXX plan year, any excess will be automatically applied to the XXXX plan year.
Can I change my election or stop contributing money to my FSA at any time during the plan year?
Federal regulations state that once you have enrolled in an FSA, you cannot change your election amount unless you have a qualifying life event. Your employer can give you a list of permitted change events.
How much will I save in taxes by contributing to an FSA?
Generally, contributions you make to your FSA are not subject to federal or social security taxes. In most instances, there are no state taxes taken out either. The amount you may save depends upon:
- The amount you put into your FSA
- The tax percentage you would usually pay on that money (tax bracket)
Let’s say you want $2,000 taken out of your paycheck this year to put into your FSA. The money you direct to your FSA is taken out of your check before taxes are taken out. That reduces your taxable income by $2,000.
Let’s say you usually pay 30 percent in federal, social security, and state taxes on your income. In this example, you would enjoy a tax savings of 30% of the $2,000. In other words, you could get a $600 tax savings on the $2,000 you directed to your FSA.
What type of flexible spending plans are there?
Health Care FSA: Covers medical, prescription, dental and vision expenses
Dependent Care FSA: Covers dependent care expenses including daycare, nursery school and day camp for children, and services for adult dependents who cannot care for themselves
Limited Health Care FSA: Covers dental and vision expenses only (for compliance with a health savings account)