What is a Flexible Spending Account?
A Flexible Spending Account (FSA) provides a tax-advantaged way to pay for eligible out-of-pocket healthcare expenses and work-related dependent day care expenses. Authorized by the Internal Revenue Code, Section 125, an FSA allows you to pay for eligible expenses with "pre-tax" dollars, thereby lowering your taxable income.
A Healthcare FSA allows you to set aside money on a pre-tax basis to pay for qualifying out-of-pocket medical, dental, vision or hearing expenses. Out-of-pocket expenses are those that are not covered by your existing insurance plans. These expenses include deductibles, coinsurance and co-pays and certain over-the-counter (OTC) expenses.
A Dependent Day Care FSA allows you to set aside money on a pre-tax basis to pay for child or adult day care expenses so that you and, if married, your spouse can work. These expenses include day care, before-and-after school programs, nursery school or preschool, summer day camp and even adult day care.
What is the main advantage of enrolling in an FSA?
The main advantage of an FSA is that you do not pay federal income taxes or social security taxes on the amount you elect to contribute to your FSA. By participating in an FSA, you pay less in income taxes because your contributions are deducted from your pay on a pre-tax basis. Now you can use your tax savings to pay for things you really want "like new" clothes, vacations, hobbies or even a gym membership.
Is there a maximum that I can contribute to a FSA?
How does an FSA work?
||Estimate the amount you will spend on out-of-pocket healthcare expenses and/or dependent care expenses during the plan year.
||Decide how much you wish to set aside into your Healthcare FSA and/or your Dependent Day Care FSA. The amount(s) you wish to set aside will be deducted from your paycheck (on a pre-tax basis) in equal amounts each pay period.
||As you incur eligible healthcare and/or dependent day care expenses throughout the year, you can access your funds by using your PayFlex Card® (if offered by your employer) or get reimbursed by submitting a claim.
Yes, the IRS maximum is $2500.00 per plan year.
Is there a maximum that I can contribute to a dependent day care FSA?
Yes, the IRS maximum is currently $5000 per household, per plan year.
How much money can I expect to save in taxes with an FSA?
You can save on federal taxes, social security taxes as well as state income taxes in most states. Generally, federal taxes range from 15% to 28% and social security taxes equate to 7.65%. Adding these amounts to your state tax will generally bring your tax savings to approximately 30% on the money you elect to contribute to your FSA.
Do I have to enroll in my employer's medical or dental plan in order to participate in an FSA?
No, enrollment in other group plan(s) is not required in order to participate in an FSA.
How do I get reimbursed?
As you incur eligible healthcare and/or dependent day care expenses throughout the year, you can access your funds by using your debit card (if offered by your employer) or get reimbursed by submitting a claim.
How often will I be reimbursed?
PayFlex processes all claims received by 11:59 pm EST on Tuesday every Thursday of the same week. We mail checks and direct deposit notices by 4:00pm EST on Thursdays.
Can I change my election during the plan year?
Due to IRS regulations, your election decision remains in effect for the plan year, unless you have a Qualifying Life Event or status change, such as a marriage, birth or death of a dependent, for example. The process for changing your election due to a status change is ultimately determined by your employer; please contact your Human Resources/Benefits Department to verify this process.
What happens if I leave my company or my employment is terminated?
Generally, upon termination of employment, you may continue to submit healthcare or dependent day care claims incurred prior to termination and up to the amount of the balance in your account. Claim submission after termination of employment is ultimately determined by your employer; please contact your Human Resources/Benefits Department to verify this information.
If my spouse and I are employed by the same employer, can we claim each other's expenses on our respective accounts?
You can either claim your spouse's expenses on your Healthcare FSA OR your spouse can claim your expenses on his/her Healthcare FSA. You both cannot file for the same expenses under both accounts. In other words, you cannot "double-dip."
What happens to the funds left in my account at the end of the plan year?
If your employer has elected to include a "grace period" within your plan, you have an additional 2 ½ months after the end of your plan year to use your FSA funds. Otherwise, IRS regulations require that any funds left in your account, remain with the plan and regulations do not allow your employer to return these unused funds to you. In most cases, the employer applies any unused funds to the administration fees of the plan. The plan document usually dictates how the employer may use the forfeited funds.
How do I avoid leaving funds in the plan?
You can avoid forfeitures by reviewing your prior year's out-of-pocket expenses to help estimate what you will spend in the next year. Make sure to be conservative and plan for predictable expenses.
What types of Healthcare expenses are eligible?
Eligible expenses include amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, and for treatments affecting any part or function of the body. The expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Expenses solely for cosmetic reasons are not generally expenses for medical care and may not be eligible. Expenses that are merely beneficial to one's general health are not expenses for medical care. In some cases, you may be asked to provide a letter of medical necessity from your attending physician to substantiate your claim. For a complete list please refer to our participant services center.
If I participate in the dependent day care FSA plan, do I need to report anything on my personal income tax return at the end of the year?
Yes, you must identify all persons or organizations that provide care for your child or dependent by filing IRS Form 2441-Child and Dependent Care Expenses, (see Instructions for IRS Form 2441), along with your Form 1040 each year (or Schedule 2 for Form 1040A). Please consult your tax advisor if you have specific questions.