Flexible Spending Accounts (FSA)
A Flexible Spending Account (also known as a flexible spending arrangement) is a special account you put money into that you use to pay for certain out-of-pocket health care costs.
You can use a Flexible Spending Account (FSA) to pay for copayments, deductibles, some drugs, and some other health care costs. FSAs are limited to $2,550 per year.
You don’t have to pay taxes on this money. This means you’ll save an amount equal to the taxes you would have paid on the money you set aside.
You can use funds in your FSA to pay for certain medical and dental expenses, including copayments and deductibles. See a list of generally permitted medical and dental expenses.
FSAs are available only with job-based health plans. Employers may make contributions to your FSA.
You can’t spend FSA funds on insurance premiums.
How the Accounts Work
- You Decide How Much to Contribute: When you enroll you must indicate how much money you want to contribute to each account during the Plan Year. To help you decide, use the enclosed worksheets or go to the IRS website: IRS to help you estimate your eligible out-of-pocket expenses for the coming Plan Year.
- Contributions Are Deducted on a Before-Tax Basis: If you choose to participate, your contributions will automatically be withheld from your paycheck before taxes have been taken out in equal installments throughout the year.
- You Pay Your Expenses Up Front: Throughout the year, whenever you incur an eligible health care or dependent care expense, you will pay the expense as you normally would. Be sure to save the itemized statement, Explanation of Benefits or receipt so you can file a claim for reimbursement to Professional Benefits Services.
- How to File A Claim for Reimbursement: You will need to complete a Flexible Spending Account Reimbursement Request Form and send it, along with an itemized billing/receipt or an Explanation of Benefits, to Professional Benefits Services. If the expense is eligible for reimbursement, you will receive a check or direct deposit (if you have completed the Direct Deposit form) for the full amount (or the amount remaining in your account, whichever is less). Flexible Spending Account Reimbursement Request Forms are available from your Human Resources Department or Professional Benefits Services.
- You Can Check the Status of Your Account Online: Professional Benefits Services offers 24/7 online access to your account. You can check your account balance, print forms, check on a reimbursement request, calculate your savings if you participate in the Flexible Spending program and many more options. You will receive additional information in the mail regarding this feature once your enrollment has been received and processed.
- You Save Money on Taxes: Because your account contributions are made on a before-tax basis, you not only lower your taxable income immediately and pay less payroll taxes now, depending on your tax situation you may owe less money in taxes at the end of the year.
- Maximum Contributions: You can contribute up to $2,500 per year with a minimum of $260 per year to the health care account and $5,000 per year to the dependent care account. (If you are married but file separate returns, the most you can contribute to the dependent care account is $2,500 per year.)
- Use It or Lose It: It is important that you estimate your eligible expenses carefully before deciding how much to contribute to a reimbursement account. In exchange for the substantial tax advantages associated with reimbursement accounts, the IRS requires that any money left over in your account at the end of the plan year be forfeited.
Dependent Care Account Eligible Expenses
The money in your dependent care reimbursement account may be used to pay eligible expenses associated with caring for your eligible dependents. Examples include the cost of day-care centers, after-school care, summer day camps, and senior centers.
The caregiver can be a relative of yours, as long as he or she is not also one of your dependents for tax purposes. You are required by law to provide your caregiver’s Federal Tax ID number or Social Security number. Your caregiver does not have to be licensed, but must claim your payments as income.
Your eligible dependents include your children under age 13, as well as any disabled spouse, parent, or child age 13 or over whom:
- Is physically or mentally incapable of caring for himself or herself
- Spends at least eight hours per day in your home, and
- Is listed as a dependent on your federal income tax return.
To be eligible for reimbursement, your dependent care expenses must be:
- Necessary in order for you and your spouse to work or seek work
- Provided by someone other than your spouse or a dependent
- Provided by someone with a taxpayer identification or Social Security number
If your day care provider does not have a standard receipt with all the required information please contact Professional Benefits Services for a day care form.
The Federal Income Tax Credit
The federal income tax credit allows you to subtract a percentage of your dependent care expenses from the federal taxes you owe. The percentage depends on your taxable household income.
IRS rules state you cannot claim the same expenses under both the dependent care account and the federal tax credit. As a result, you will have to decide which one is more advantageous to you.
How Much Can I Save?
How much money can you save? That depends on a number of factors, including your income, marital status, and number of dependents. By calculating your eligible expenses in advance and having the amount automatically deducted from your paycheck, your tax base is reduced. Depending on where you live, you may be able to save money on state and local taxes as well. Please consult your tax planner or financial advisor for additional details regarding how participating in the flexible spending program can save you money.