Flexible Spending Accounts Defined
Flexible Spending Accounts (FSA’s), known also as Reimbursement Accounts, are authorized by Section 125 of the IRS Code. FSA’s provide valuable benefits where both employer and employees save significant amounts on taxes and where employees have some freedom of choice in designing their own benefit packages. They allow employees to pay for qualified unreimbursed medical expenses with pretax dollars. This helps make these expenses more affordable.
Frequently Asked Questions
How do Flexible Spending Accounts work?
Before the plan year begins, eligible employees elect to have a part of their pay placed in accounts before that money is taxed. This money will be deducted from a participant’s pay each pay period during the plan year. This information is forwarded to HealthCare Solutions Group. The money is held in the participant’s account and when an eligible expense is applied to the account the participant will be reimbursed by the plan. Therefore, the actual cost of paying for such services is less than it would have been if after-tax dollars were used. The money that has been elected to be payroll deducted will be used to cover any eligible un-reimbursable medical expense.
What are the advantages of an FSA?
FSA arrangements offer substantial benefits to both employees and employers. Such benefit packages generate potential tax savings for employees and may contribute to improved morale by offering employees the flexibility of designing benefit packages to meet their needs.
Although the reduced employee salary may mean reduced Social Security benefits upon retirement, the difference is generally inconsequential. For employers, flexible benefit packages can be a very important tool for recruiting new employees and retaining current employees. When salaries are reduced, the cost to the employer for benefits related to salary may also decrease. The greatest savings to the employer will generally be the employer portion of Social Security.
What are the disadvantages of an FSA?
It is very important that you estimate your expenses carefully, because amounts deposited to your account that are not used in the calendar year cannot be returned to you. Also, because you are reducing your social security contribution, there could be an effect on your future social security benefit. Although these reductions usually are not significant amounts, you need to be aware of them.
What is the disadvantage to the employer?
The employer pays the cost of administering these plans. In general, the payroll tax savings offset the cost of administering such plans.
What is the tax advantage?
The amount that a participant elects to contribute to a Flexible spending account is deducted from pay before taxes. The amount of money goes into an account where it is available for reimbursement of claims for eligible expenses. Because the money comes out of pay before taxes, taxable income decreases and employees pay less in Federal, State, Local and Social Security taxes.
Who can participate in a Flexible Spending Account (FSA)?
All eligible employees, their spouses and IRS eligible dependents can participate. Eligible employees would be full-time employees who have completed their waiting period under the medical plan.
What is the maximum I can contribute to my account?
For 2015, the maximum annual contribution is $2,550 per family (Dependent Care $5,000).
Can I change the amount I elect to contribute to these accounts?
You can only change the amount you contribute annually, prior to the beginning of each plan year. During the plan year you may change your contribution only if you experience a change in family status.
What happens if I have not used all the money in my account by the end of the year?
The IRS regulations dictate that up to $500 of unused medical reimbursement funds can be carried over to the immediately following Plan Year to pay or reimburse medical expenses incurred during the entire Plan Year to which it is carried over. You will have a 90-day grace period following the Plan Year to file for reimbursements for expenses incurred in the previous Plan Year for any unused funds exceeding the $500. At the end of the grace period, any unused funds exceeding the $500 that was carried over will be forfeited and retained by the Employer.
Why has the IRS introduced the “use it or lose it” rule to the FSA?
The IRS views FSA’s as a source of lost tax revenue. FSA participants have an advantage over those not offered an FSA in that they may not only recover more of their tax dollars but also receive them sooner. The best way to avoid losing FSA funds is to budget carefully when you make your contribution election.
Some Tips: Base your contribution from last year. Budget conservatively, but don’t overlook all those incidental expenses like co-pays, optical care and deductibles that add up. And remember, if a small amount is forfeited, it’s often outweighed by the tax savings and increased spending money you’ll net.
How do I file for reimbursement?
If you are a participant with HealthCare Solutions Group and have no other secondary carrier, your out-of-pocket expenses for medical services can automatically rollover to your Flexible Spending Account or be paid for using a Flexible Spending Debit Card. If you have medical, dental or secondary coverage with another carrier, you will have to file a request for reimbursement with appropriate documentation about the services rendered and what the other carrier paid in benefits.
Do I need receipts in order to receive reimbursement?
Any “over-the-counter” expense or prescription copayment will need to be filed along with the itemized receipt to HealthCare Solutions Group in order to be reimbursed. Certain over-the-counter medications also require a prescription from your Physician. Health care claims should be accompanied by an Explanation of Benefits from your secondary carrier, if applicable, along with the corresponding receipts. If HealthCare Solutions Group is your only insurance carrier for all means of reimbursement, then no explanation or filing is necessary. If you elect the Flex Debit Card, you need to keep all receipts for all purchases/services paid for by the Debit Card as you may have to provide them later to substantiate the expense.
Can the FSA reimburse my health care provider?
No, the FSA cannot make a payment on your behalf. All reimbursements must go directly to the participant.
Can I claim my contribution or my spouse’s contribution to health insurance through my FSA?
No, premiums are not eligible FSA expenses. However, premiums for programs offered by an employer may be a separate pre-tax deduction.
Do I have to keep track of how much is in my account during the year?
No, HealthCare Solutions Group will do it for you.
If I leave my job, may I still participate in the FSA program?
You can continue your Flexible Spending Account under COBRA. You would continue to make contributions in your Flexible Spending Account, but on an after tax basis.
How often will a participant receive reimbursement?
HealthCare Solutions Group will make reimbursements weekly.
If I have a question regarding my spending account whom do I call?
Contact the Flex Department of HealthCare Solutions Group at (800) 749-1422.
Maximizing Your Employee Benefits
A Flexible Spending Account can save you money by using before-tax dollars for unreimbursed medical expenses but requires careful planning. Keep in mind that money deducted from your pay and deposited in your flexible spending account must be applied to expenses incurred during the Plan Year. Eligible expenses must be received no later than March 31st. What about carry over? Up to $500 of unused funds can be carried over to the next year. Any unused funds in excess of $500 will be forfeited.
Following is a partial list of eligible and non-eligible expenses for reimbursement under this Plan. A comprehensive listing of eligible and non-eligible expenses can be found in IRS publication #502. (available from the IRS at 1-800-829-3676). These lists are subject to change.
What are eligible medical care expenses?
- Deductibles and Co-insurance for medical and dental.
- Prescription Drug co-pays
- Prescriptions not covered by the plan
- Any co-insurance amounts required by the plan
- Any office visit co-payments required by the plan
- Expenses for care and treatment exceeding the limits of the plan
- Expenses not covered by the plan due to a pre-existing condition
- Charges over the usual and customary limits
- Eye Exams and Corrective lenses
- Hearing aids and batteries
- Qualified expenses not covered as a result of not being a participant in the ABC
- Company Health Care Plan.
- Over-the-counter drugs used to treat a medical condition *Written prescription from
- Physician required (See page 2)
- Charges for Orthodontia treatment.
- Lasik eye surgery.
What are non-eligible expenses?
- Premiums for insurance coverage
- Dietary Supplements, such as vitamins, taken for general health purposes.
- Vacations taken for health purposes
- Maternity clothes, diaper service, etc.
- Funeral and burial expenses
- Cosmetics and toiletries
- Marriage or family counseling
- Health club dues
- Domestic help
- Mechanical exercise device not prescribed by a physician
- Wigs not considered medically necessary
- Dust elimination systems
- Nursemaids or practical nurses who provide general care for healthy infants
- Custodial care in an institution
- Self help medical expenses
- Fees for physical treatments (massages, exercise classes, and health club fees that are not prescribed by a Physician and are unrelated to a specific health problem, fees for weight loss and smoking cessation programs for general health purposes, and fees for hair transplant or replacement procedures/treatment)
- Medical expenses which are claimed on tax returns
- Transportation expenses to and from work even though a physical condition may require special means of transportation.
Following is a partial list of eligible and non-eligible “over-the-counter” expenses for reimbursement under this Plan. These lists are subject to change.
What are eligible “over-the-counter” expenses that require a prescription?
Bug bite medication
Diaper rash ointments
Ear care/swimmer’s ear
First aid creams/ointments
Head lice treatment
Menstrual cramp/pain products
Motion sickness pills
Ointments for burns/sunburn
Pain relievers/fever reducers
Pain relievers/muscle pain
Pedialyte for child’s dehydration
Rashes: diaper rash/fever blisters
Rashes: poison oak/ivy/sumac
Sleeping aids for insomnia
Smoking cessation treatment
Vaginal product/yeast infection
Wart removal treatments
What are eligible “over-the-counter” expenses that DO NOT require a prescription?
Blood pressure monitors
Carpal tunnel (wrist) support
Cold/hot packs for injuries
Contact lens solutions
Hearing aid batteries
Night guards for teeth grinding
Pregnancy test kits
Spermicidal foam – contraceptives
What are non-eligible “over-the-counter” expenses?
Cleansers or soap that are considered toiletries (non-medicated)
Cosmetic products of any kind
Teeth whitening products
Vitamins – used to improve or maintain general health
*None of the above items are eligible for the Flexible Spending Account