Flexible Spending Accounts are a great way for employees to save on medical expenses not otherwise covered by insurance. At the beginning of the plan year, employees choose how much they would like to set aside in a tax-free account. Employees can use this account to pay for eligible medical, dental, vision, hearing and prescription drug expenses for themselves, their spouse and their eligible tax dependents.
An FSA is a tax-free benefit account offered by an employer, where the participant/employee sets aside money to pay for eligible medical expenses.
Who is eligible for an FSA?
To be eligible for an FSA, a participant/employee must work for an employer that offers an FSA. Unlike a Health Savings Account (HSA), an FSA does not require the participant/employee to be enrolled in a High Deductible Health Plan (HDHP).
The difference between an FSA and an HSA is that the individual controls an HSA and may allow contributions to rollover, whereas, FSAs are owned by the employer.
What’s the benefit of an FSA?
The participant/employee does not pay taxes on any money put into an FSA.
Is there a limit to FSA contributions?
Yes, the annual FSA contribution limit is $2750 for 2020.
What expenses are eligible to spend FSA funds on?
Eligible healthcare expenses are governed by IRS Section 213(d).
What if I do not use all of my FSA funds during the plan year?
If the participant/employee has leftover funds in an FSA after the plan year is over, the employer has the option of:
- Allowing a rollover of up to $500 into the next plan year.
- Allowing a grace period of up to 2 ½ months (75 days) to spend any leftover money in the account, including eligible healthcare expenses incurred after the end of the plan year.
- Allowing a run-out period of up to 3 months (90 days) to file claims for eligible healthcare expenses incurred during the plan year or grace period.