Flexible Spending Accounts (FSAs)
Expenses such as deductibles and copays can quickly add up; and dependent day care or elder care expenses can be even more expensive. Flexible Spending Accounts (FSAs) are a tax-free way to pay health care and dependent care expenses you would typically pay out-of-pocket. The contributions you set aside are not taxed, so you save money.
Each year you would like to participate in the FSAs, you must elect the amount you want to contribute to either or both of the FSAs. Deductions will come from your paychecks in equal installments throughout the year and be deposited into your account(s). Both accounts function separately.
Important Rules to Keep in Mind:
FSAs offer sizable tax advantages. But these accounts are subject to strict IRS regulations, including the following:
- The IRS has a strict “use it or lose it” rule: If you do not use the full amount in your Dependent Care FSA by the end of the plan year you will lose any remaining funds. If you do not use the full amount in your Health Care FSA by the end of the plan year, you are now able to roll over up to $500 into the next plan year.
- Once you enroll in the FSAs, you cannot change your contribution amount during the year unless you experience a qualified status change.
- You cannot transfer funds from one FSA to another.
Limited Purpose Flexible Spending Account:
The Limited Purpose Flexible Spending Account (FSA) works in combination with a Health Savings Account (HSA) to help you save money to pay for eligible dental and vision costs.
You decide how much you want to contribute, and you don’t pay taxes on the contributions or the withdrawals when used to pay for eligible dental and vision costs
Plans may vary. Below is a summary of how a Limited Purpose FSA works:
- At the beginning of the plan year, you estimate your anticipated eligible dental and vision expenses for yourself, spouse/partner, and eligible dependents. You decide an amount to be deducted from each paycheck to be deposited into your FSA to help pay for eligible expenses.
- Reimburse yourself for eligible expenses using an FSA debit card or reimbursement form (depending on your FSA funding features).
- Once you meet your Limited Purpose FSA deductible, the account may be used to reimburse general qualified out-of-pocket medical expenses like a traditional FSA.
- You are able to carry up to $500 into next year.