A Healthcare Flexible Spending Account (FSA) is a reimbursement account made available by your employer. It saves you money by letting you use pretax dollars to pay for items not paid for by your traditional health insurance plan.
In the past, IRS rules said you had to lose (forfeit) any remaining money in your FSA if you did not use it all before year end, which is December 31 for most employer plans. In May 2005, however, the IRS announced that it will now permit employers to change their FSA programs so that employees can have an additional 2 months and 15 days in which to incur covered medical expenses. For example, this means that if you had $200 remaining in your FSA on December 31, the IRS will give you until March 15 of the following year to spend those funds on covered medical expenses. You don't lose the $200 on December 31, and you may spend it, for example, on OTC medicines in January or February. The 2½ month grace period can help ensure you don't lose the funds you allocated to your FSA. Check with your employer as to whether they have adopted the new 2½ month grace period for FSA expenses under your FSA.
Yes, in addition to Healthcare FSAs there are Dependent Care FSAs and Transportation FSA accounts. These are separate spending accounts and you cannot transfer money among these three accounts. This website is dedicated to Healthcare FSAs.
You choose how much money you would like to automatically deduct from your paycheck each pay period and put into your separate FSA account. Reimbursement is easy. You can use a debit card (if your employer provides one) to spend the money on eligible expenses. If your employer doesn't provide a debit card, you submit receipts and get reimbursed by check or direct deposit. If your company is set up for it, some of your expenses may be reimbursed without the need to submit claims.
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There are no legal limits on how much money you may contribute to your FSA plan-but your plan sponsor (employer) may set a limit (both minimum and maximum contribution dollars). You will want to estimate your eligible expenses to figure out the right contribution for you or your family. Use our FSA Savings Calculator to evaluate your needs.
You can access your entire year's worth of contributions at the start of your employer's benefit plan year. For example, if your employer's benefit year starts on January 1, you could get your child's braces in January and be reimbursed for the entire out-of-pocket amount right away-before all of the year's payroll deductions have been made.
Your gross, or pretax, pay will remain the same. But your 'net' pay will be lower because a portion of it will go into your FSA account. The advantage is that this money gets put into your FSA account BEFORE taxes, which lowers your 'taxable' income. So you get the double advantage of saving money for healthcare expenses and paying fewer taxes.
You choose your FSA contribution amount during open enrollment (it's usually in the fall); this is the time of year you elect/change your benefits such as medical, dental, etc. Open enrollment season varies from company to company. Once your contribution election becomes effective, you won't be able to change it until the next open enrollment period, UNLESS there is a change in your eligibility status (such as marital status, a newborn, an adoption, etc.). You must check with your employer for specific eligibility status rules.
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Here are some typical examples of FSA-eligible expenses (things that often aren’t paid for by health insurance plans):
• Medical and dental deductibles and co-payments
• Eye exams, contact lenses, and glasses
• Prescription drug co-payments and co-insurance
• Over-the-counter (OTC) products
• Orthodontia or other dental care
• Physical therapy
• Chiropractic care
• Hearing aids
• Smoking cessation
View a list of eligible expenses, or talk to your Healthcare FSA Administrator or Human Resources department for more details.
No. Only medicines and products used for medical purposes are covered (not for cosmetic purposes or general health). Eligible OTC items include medicines or products that alleviate or treat illness for you and your dependents (like Tylenol®, Pepcid®, Motrin IB®, Lactaid®, St. Joseph® Aspirin, Imodium®, etc.).
These items are not eligible because they are cosmetic in nature, or merely beneficial to your general health (like soap and toothpaste).
A Healthcare FSA is NOT the same as a Health Reimbursement Arrangement (HRA) or a Health Savings Account (HSA). However, all three accounts allow you to purchase OTC products.
The HRA is a medical expense reimbursement plan, in which only your employer may make contributions on your behalf - you may not make pretax contributions to an HRA. An HRA may be offered together with a high-deductible health plan or on a stand alone basis.
An HSA is different from FSAs and HRAs. You can only make or receive contributions to your HSA if you are enrolled in a special high deductible health plan (HDHP). You may tap the funds in your HSA for eligible medical expenses on a tax-free basis, or use the funds for any other purpose (in which case, income and penalty taxes will apply to the funds you withdraw). Additionally, employees can take their HSA with them if they leave their employer - this cannot be done with an FSA or HRA. Even though HRAs are not portable, they can be vested and remain available after employment terminates; at the discretion of the employer plan sponsor (FSAs cannot be vested).
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FSAs are not required to accrue interest. The same is true for HRAs. This is different from HSAs, which can earn interest.
If you leave or are terminated from your job, the amounts credited to your FSA will be forfeited. However, if you have used your entire FSA benefit prior to your leave/termination, you may not be required to pay your employer the balance of the remaining monthly contributions. You have the ability to use your full annual amount of FSA dollars on day 1, even though your contributions will be made each pay period during the year.
Claiming a tax return deduction is only beneficial for people with substantial uninsured medical expenses. According to the IRS, only medical/dental expenses that exceed 7.5 percent of your "adjusted gross income" and not covered by insurance can be deducted from your income taxes. Most people do not have uninsured medical expenses high enough to qualify for this deduction. For example, if your adjusted gross income is $40,000, you could only deduct those uninsured medical/dental expenses in excess of $3,000 from your income taxes.
Here is a "real" example:
Your specific savings will depend on your salary, how much you contribute into the FSA, your tax bracket, how you file your taxes (single, married, etc), your health, etc. Generally, participants save 15% - 30% on eligible items purchased using their FSA dollars.
You may continue your FSA on COBRA provided there is a positive balance in your FSA when you seek to continue coverage; that means you have contributed more to the FSA year-to-date than you have received in reimbursements.
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