An FSA, or flexible spending account, is a great way for employees to save costs on health insurance, sometimes with help from their employer.
An FSA, or flexible spending account, is a great way for employees to save costs on health insurance, sometimes with help from their employer. However, many employers have questions about how FSA contributions work. Here’s what’s covered by an FSA, and how your employees can use them.
What is an FSA?
First, what is an FSA? A Flexible Spending Account is specifically designed to cover out-of-pocket healthcare costs incurred by certain treatments and services. FSA holders don’t pay taxes on this money, meaning that they get to keep the money they would have otherwise given to taxes.
Money in an FSA that isn’t used up by the end of the year is forfeited, save for the $500 that employers can allow employees to carry over into the next year. Moreover, FSA funds do not have to be paid back to the employer if the employee becomes terminated or quits partially through the year.
Money in an FSA that isn’t used up by the end of the year is forfeited, save for the $500 that employers can allow employees to carry over into the next year.
Can an employer contribute to a flexible spending account?
Employers can and often do contribute to employee FSAs. However, the amount that an employer pays into the account must be determined at the beginning of the fiscal year. Employees can decide to pay an amount lower than that, depending on their budget.
How much can the employee contribute to an FSA account?
The IRS states that employees must decide on their FSA contributions at the beginning of the year. This will ensure that payroll deductions remain consistent for tax reporting and payment when the time comes.
Additionally, new FSA rules outlined in 2018 state that employees can contribute an additional $50 dollars to their accounts. This is an increase in the total limit that can be contributed, moving the former amount from $2,600 up to $2,650. This might not seem like a significant increase in the short term; however, it can go a long way for assisting families and small businesses who value each and every dollar.
In 2019, that cap will raise $50 once again for a $2,700 annual limit.
Can I use FSA for copays?
An FSA can be used for out-of-pocket expenses such as copays and deductibles. Additional costs incurred by ailments and illnesses may also qualify, including eye exams, contact lenses, and glasses. Crutches, a wheelchair and hearing aids also fall into this category. Certain over-the-counter drugs, such as those requested without a prescription, cannot be paid for unless a doctor has given their permission. Flexible spending accounts can also be used to help care for employees’ loved ones with an FSA Dependent Care.
Can I contribute to an HSA and FSA at the same time?
Many people who have an FSA also have an HSA, or health savings accounts. Contrary to popular belief, it’s acceptable to contribute to both your HSA and FSA in the same year. There are some restrictions on this, however, and it’s important that your FSA and HSA don’t overlap. This means that they should be acquired from individual jobs.
You can also feel safe contributing to both when you have a limited purpose FSA (one that covers dental, vision, and other eligible expenses, but not medical or prescription drugs). The same goes for holders of a post-deductible FSA plan, which only is implemented after having satisfied the deductible in a high deductible plan.