When it comes to the world of healthcare, there are a lot of different terms and acronyms to know. Although many people have heard of an FSA, they don’t exactly know what it means. A flexible spending account (FSA) is an account where employees can set aside pre-tax money to use for future medical, dental, or vision care costs. There are different types of FSA plans, therefore, the expenses that can be paid for with FSA contributions vary on the type of plan you may have. There are many benefits to having an FSA account and you can actually have significant savings when using FSA funds as opposed to your checking account. Here are all the details about FSAs and how they can be of great importance to you and your business.
Information On Flexible Spending Accounts
Types Of FSAs
- Healthcare FSA: The function of a healthcare FSA is to help employees pay for out-of-pocket medical expenses. Whether the expenses are deductibles, prescriptions, copays, or out-of-pocket dental and vision care, having an FSA account will allow you to pay for them using your pre-tax money. The contribution limit for healthcare FSAs in 2020 is $2,750. You can use this money to pay for your medical expenses or those of your spouse and dependents which you claim on your tax return.
- Dependent Care FSAs: Dependent care FSAs were created with the intention of aiding working parents and caregivers by paying for the care that can allow them to work. These expenses must be made to give you the time to work or allow you to look for work. An example of this care is babysitters, daycares, preschools, or before and after school care for children under the age of 13. Another important factor to note is that dependent care expenses can only be used for those individuals living with you or at least living the majority of their time with you. The annual limit for this FSA is $5,000 for a married couple or $2,500 for a sole account.
- Limited Purpose FSAs: A limited purpose FSA is a special account made for those who have already enrolled in a Health Savings Account (HSA). The difference with this account — as opposed to a normal healthcare FSA — is that expenses can only be used for eligible dental and vision care. It’s crucial to note that it’s prohibited to submit the same expense reimbursement from both an HSA and a limited purpose FSA. The limit for this account is also $2,750.
Differences Between HSA and FSA
As an employee, you may also be offered the option of a Health Savings Account (HSA). Although this type of account is similar in nature to an FSA, there are some important differences to take note of when choosing the best fit for you. Most importantly, FSAs are recommended for those who foresee a large number of medical expenses in the near future. That’s why an HSA account can be a better option for those who don’t think they’ll need to withdraw money for health care expenses. Of course, accidents can happen and that’s why we need to ensure that employees are always covered in situations like these. For individuals who have recurring health care costs that need to be paid every year, FSAs are highly recommended to save money and snag a tax break. Also, remember that if you already have enrolled in an HSA account, the only FSA you qualify for is a limited purpose account.
We have already established that with an FSA account, employees can allocate pre-tax money into an account to withdraw these funds tax-free at a later date to pay for qualifying health care costs. This can greatly benefit employees because by contributing to an FSA account, employees increase their pay by reducing taxable income. When enrolling in your employer’s sponsored FSA, your earnings are no longer subject to federal and most state taxes. However, one factor to consider is that unused funds in the account are forfeited at the end of the specified timeframe. This has made many employees reluctant to enroll in an FSA account. Before shying away from FSAs however, you should know that the IRS has introduced new rules which allow for a rollover of a portion of the money or an extended timeframe to use up the money. These new rules make it so that people aren’t discouraged from enrolling in an FSA and can receive the benefits without losing any money.
How To Enroll In An FSA
For anyone eligible to enroll, employers will provide the necessary information and forms. You’ll need basic information such as your name, address, and social security number. Additionally, you will need to confirm the total amount of savings you would like to contribute to your account for the year. The selected amount will be deducted pre-tax from each of your paychecks in equal portions throughout the year. Meaning, your taxable income decreases while your take-home pay increases.
When To Enroll In An FSA
Here are the 4 times you are eligible to open an FSA:
- When Hired: When starting a new job you may be offered an FSA, the opportunity window to enroll is within 30 days of your hire date.
- Initial Enrollment: If your employer is fixing a replacement FSA plan, you’ll have time to enroll depending on when they complete the setup.
- Open FSA Enrollment: In November, the IRS announces FSA contribution limits for the subsequent year. You’re allowed time through December to make a decision.
- Qualifying Life Event: In the case of a major life event that could change your spending habits, like the birth of a child or marriage, you can enroll at that time. Usually, you have 30-60 days after the event but always check with your provider to confirm.
Choose The Best Coverage Plan For Your Business
As an employer, you always want what’s best for your employees and the overall business. Whether it’s enrolling your employees in an FSA account or going another route, Alltrust Insurance can help you every step of the way. By working collectively, we can provide the best employee benefits for your team in the Tampa Bay Region and ensure that everyone is covered in the case of unforeseen medical expenses.
This blog post is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.