Flexible Spending Accounts (FSAs)
Why Not Use Pre-Tax Dollars to Pay Your Expenses?
A Flexible Spending Account (FSA) is an employer sponsored benefits program offered to employees that helps them save pre-tax dollars to pay for qualified medical or dependent care expenses.
Health Care FSAs
The pre-tax contributions employees make to their health care FSA can be used to reimburse themselves for qualified, out-of-pocket health care expenses incurred by them and/or covered dependents. Qualified expenses include co-pays, deductibles, prescriptions, dental visits and procedures, orthodontics, eye exams, glasses, contacts and even Lasik surgery. FSAs are funded through payroll deductions. For plan start dates January 1, 2013 and later, the IRS has set a $2,500 annual maximum contribution limit for FSAs. Employers may even set a lower contribution limit for their employees.
Dependent Care FSAs
The Dependent Care FSA account allows you to set aside tax-free dollars from your paycheck, in order to pay for the dependent care expenses of a qualifying tax dependent. These expenses must be work-related to be considered eligible.
According to Section 125 Dependent Care Guidelines, eligible dependents include any tax dependent who is below the age of 13, or anyone who is unable to physically or mentally care for themselves. Additionally, a qualifying dependent can include any household member who is dependent upon the account holder for at least half of their support. The IRS annual maximum contribution limit is $5,000 per year, per household. This amount is reduced to $2,500 for employees who are married and file separately.
When an employee enrolls in a health care and/or dependent care FSA, they elect their total contribution amount for the entire plan year up-front. The contribution amounts are then divided equally and deducted from their paycheck as a pre-tax payroll deduction. These deductions are exempt from state, federal, and FICA taxes, which means employees are saving their tax rate percentage on qualified expenses. Once enrolled, a member can't change their annual contribution election unless they experience a qualified status change (i.e., marriage, divorce, birth or adoption of a child, death of a dependent, or a change in the employment status of their spouse.) FSA account holders should carefully estimate their out-of-pocket qualifying expenses to calculate their contribution amount.
Please Use It—or You'll Lose It
FSA funds can only be used for the current plan year. Many FSAs have a grace period at the end of the year, so any end of year claims can be submitted and reimbursed. Funds can't be transferred from one account to another or rolled into the next plan year. Any funds remaining in an FSA after all eligible claims are paid will be forfeited and returned to the employer.
To receive a reimbursement from their FSA, members complete an online reimbursement claim form and upload any itemized receipts or a bills for qualified expenses. HealthEquity will process the claim quickly and reimbursements are drafted weekly. Automated direct deposits make it hassle-free to receive your reimbursements direct to your personal bank account. A manual check fee of $2.00 will apply if you request a check to be mailed. Remember to allow 7-10 days to receive your check via mail.
All member and employer forms can be found online at myhealthequity.com.
Visit the Document Library in the Education Center to learn more.
Rely on HealthEquity, the FSA experts, to provide up-to-date answers to your questions.
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Use your dependent care FSA to pay for, or get reimbursed for, dependent care expenses that are a result of working or looking for work.