A Flexible Spending Account (FSA) is a valuable employee benefit that allows you to have pre-tax dollars withheld from your paycheck to pay for eligible health care or dependent care expenses. It covers not just your medical expenses, but also the expenses of your spouse and tax dependents. Depending on your tax bracket, you may save up to 30% or more in taxes.
Because there’s so much more to know about flexible spending accounts, we’ve put together this list of FSA FAQs to help you make the most of your flexible spending account:
Even with the best health plan, you are likely to have out-of-pocket expenses each year. If you have children and have to pay for child care, a dependent care account can help stretch your hard-earned dollars. There are two types of flexible spending accounts:
Your biggest advantage is the tax savings. Every dollar you set aside in your account reduces how much you pay in income taxes. Plus, you can be reimbursed for qualified expenses that you are already paying for!
No. One of the main differences between the FSA and the HRA is the source of funding. HRAs are funded solely through employer contributions while FSAs are typically funded by the employee, usually through pre-tax, payroll deductions. However, you can have both accounts. If you have both an FSA and an HRA, then expenses eligible under both accounts will usually be reimbursed through the FSA first, then default to the HRA. Contact your Human Resources office for the specifics of your plan.
The rules for funding and accessing funds in an FSA are legislated by the IRS and mandated to be used for health care expenditures only, but there are literally thousands of products and services that meet the approved health care expenditures requirements in Section 213(d) Medical Expenses as defined in the IRS code.
Qualified medical expenses are defined as: copayments or coinsurance, dental care costs, vision care costs, prescriptions medications and some over-the-counter medications. Your employer may limit what expenses your plan reimburses; please contact your Human Resources office for more information. For a general list of approved health care expenditures, please refer to Qualified Medical Expenses.
Health Care FSA: Services that are typically not eligible or reimbursable include:
Dependent Care FSA: Services that are typically not eligible or reimbursable include:
Please refer to Qualified Medical Expenses to find a general list of non-eligible expenses.
If you file a manual request for reimbursement of a non-eligible expense, the request will be denied. If you used the payment card and the expense is deemed ineligible after the expense is already paid, you will be required to reimburse your account for that transaction. If you fail to reimburse the account, you may be required to pay income taxes.
Beginning January 1, 2018, Health FSA contributions are limited by the IRS to $2,650 each year (up from the 2017 limit of $2,600). The limit is per person; each spouse in the household may contribute up to the limit. Your employer may elect a lower contribution limit. Please see your plan documents or check with your Human Resources office for the specifics of your plan. The limit may be adjusted annually to account for inflation increases.
For Dependent Care FSAs, you may contribute up to $5,000 per year if you are married and filing a joint return, or if you are a single parent. If you are married and filing separately, you may contribute up to $2,500 per year per parent.
No, this is not allowed.
Reimbursements under the dependent care account must be for employment-related expenses, and IRS regulation Section 129 Dependent Care Assistance Programs regulates what expenses may be reimbursed. Employment-related means an expense for dependent care that allows you and your spouse, if applicable, to be gainfully employed.
The Dependent Tax Credit is an alternative to using a Dependent Care account and is a credit against tax liability. IRS Publication 503 Child and Dependent Care Expenses contains detailed information for determining whether a taxpayer may claim the Dependent Care Credit. For some employees, the Dependent Care Credit may be more advantageous than participating in the Dependent Care FSA, and care should be used in determining which method to select.
The IRS regulates Flexible Spending Accounts under IRC 125. According to the IRS guidelines, funds that are not claimed during the plan year are forfeited to the plan. This is called the “use it or lose it” clause. Funds in FSAs subject to this clause are not transferable from one plan year to another and they are not available for other benefits. The unused funds are retained by the plan sponsor, your employer, and can be used to offset administrative costs of the plan.
However, in October 2013 this original provision was altered. Employers sponsoring FSA plans can now allow employees to carry over up to $500 of their unused account balances to pay for qualified medical expenses incurred in the next year or establish a grace period of up to two and a half months in the new plan year in which the prior year’s balance may be used. Employers can offer one of these options, but not both, and they are not required to offer either.
Check with your benefits administrator to find out if your FSA carries a carry over or grace period option.
No. Therefore, we must have your provider’s social security number or Employer Identification Number in order to process dependent care claims.
We do not supply information to the IRS related to an individual FSA. The plan sponsor, your employer, may be required to file an IRS form 5500 which includes participation and total disbursement information (does not include individual FSA information) and your participation in the Dependent Care Assistance Program will be reported on your W2 at the end of the year by your employer.
You and your family can still participate in the Health Care and Dependent Care Flexible Spending Accounts.
Yes. All eligible out-of-pocket expenses incurred by you and your qualified dependents can be reimbursed by your Health Care FSA, even if such dependents are not enrolled in your employer’s health plan.
Dependents must be either your spouse or someone you can claim as an exemption for federal income tax purposes.
To be covered through your Dependent Care FSA, the individual must meet one of the following criteria:
You will receive a payment card to access your FSA. You can also pay for eligible expenses with any other form of payment and request reimbursement from your account.
Account Balance and Claims Status information is available three ways:
Once an election for the FSA(s) has been made, you cannot change the amount unless you terminate employment with your company or there is an appropriate change in status. Valid changes in status for both Health Care and Dependent Care accounts include:
No. You are no longer eligible to be reimbursed for care for a child as of age 13, unless they are physically or mentally incapable of caring for themselves. Having a child attain age 13 is a qualifying event and a reason to terminate your participation in the plan.
For a Dependent Care FSA, your deductions will end when your employment ends. You are eligible to be reimbursed only for services that were received before your termination date, but you can request reimbursement for these expenses through the end of your former employer’s plan year.
Deductions for your Health Care FSA will also end when your employment ends unless your employer is obligated to offer you COBRA continuation and you elect this option. If your employer is not obligated to offer you COBRA and/or you choose not to elect COBRA, you are eligible to be reimbursed for qualified expenses incurred while you were employed and the account was active. Requests for reimbursements should be submitted prior to the end of your employer’s runoff period.
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