Improving the Benefit Experience
The Flexible Spending Account (FSA) is a voluntary plan that allows employees to make pre-tax contributions to a dedicated reimbursement account to pay for eligible out-of-pocket healthcare expenses. Employees make an annual election to be deducted from their paychecks over the course of the plan year up to a limit of $2,650.
Employers and employees save money with an FSA;
• The employer’s total taxable payroll is reduced before calculating payroll and related taxes, directly lowering the employer’s payroll tax liability.
• Employees reduce their total taxable income and wage-related taxes.
There are two types of FSA accounts:
• Medical FSA, which allows the reimbursement of qualifying out-of-pocket medical expenses (Annual maximum $2,650).
• Dependent Daycare FSA, which allows for the reimbursement of qualifying out-of-pocket child/elder care expense (Annual Maximum $5,000).
FSA’s are commonly known as a “use-it or lose it” account; if the employee has not used all of their funds by the end of the plan year, those funds will be forfeited to the employer.
In 2014, a new carryover feature was added that allows up to $500 of unused FSA funds to be carried forward into the next calendar year. The grace period to submit claims was eliminated for plans electing to add the carryover feature so not all plans include the provision. Consult your plan document to determine if your plan contains this new feature.