What Is a Flexible Spending Account?

A flexible spending account (FSA) is a voluntary employer-sponsored program for employees to save a
portion of their income to be used to pay for qualified medical or dependent care expenses incurred
during their benefit plan year. Contributions are tax-free.

How It Works

Health and dependent-care FSA plans give employees the opportunity to realize tax savings on medical and
daycare expenses through two separate pre-tax accounts.

Health Care FSA

The money employees contribute to their health care FSA can be used to reimburse themselves for eligible,
out-of-pocket health care expenses made for themselves and/or covered dependents. Accounts are
funded through payroll deductions. The employer determines the plan year and the maximum
contribution amount an individual may contribute to their health care FSA during the plan year.

Dependent-Care FSAs

A dependent-care FSA is set up to reimburse an employee for their eligible, dependent-care expenses.
Eligible expenses include dependent-care expenses for children under age 13, a disabled spouse, and/or
a disabled relative or household member who depends on the account holder for at least half of his or
her support. Accounts are funded through payroll deductions. The IRS limits dependent care maximums
to $5,000 per year, $2,500 if the employee is married and filing separately.

FSA Elections

When an employee enrolls in a health care and/or dependent care FSA, they need to elect the total amount of
coverage they need for the plan year. In other words, they will have to decide upfront how much money they
want to have deducted from each of their pay checks to fund this account. These deductions are exempt
from state, federal, and FICA taxes.

Encourage your employees to calculate expected spending as closely as they can in order to determine the
total amount of funds they want deducted from their annual income in a plan year. Once enrolled, an
employee can't change their annual contribution election unless they experience a qualified status change,
such as marriage, divorce, birth or adoption of a child, death of a dependent, or a change in the employment
status of their spouse.

Use It or Lose It

Funds in a health care and/or dependent care FSA can only be used throughout the plan year. Unused funds will
revert to the employer. Funds can't be transferred from one account to another or rolled into the next plan
year. In addition, employees must file claims for an expense incurred during the plan year and before the end
of the run-out period, in order to receive a reimbursement from the FSA. All funds remaining in the account
following the run-out period will be “forfeited” and returned to the employer.

Reimbursement

To receive a reimbursement from the FSA, employees must submit a completed reimbursement/claim form
with an itemized receipt or bill that indicates the date and type of services and the amount they are
responsible for. HealthEquity pays claims weekly.

If they choose, individuals may submit a completed direct deposit form and have reimbursements directly deposited into a personal account. Otherwise, payment will be mailed in the form of a check. Please note that there is a $2.00 fee for reimbursement provided via check. All of the forms can be found online at myhealthequity.com.

Learn more about FSAs in the Resource Center.