Flexible spending accounts (FSAs) let your employees reduce their taxes and increase their take-home pay. It lets employees set aside money for eligible expenses.
Q: What’s an FSA?
A: An FSA is a benefit you sponsor for your employees. It lets your employees set aside pre-tax dollars to pay for eligible expenses like:
- Health care
- Dependent care
Q: Who can offer an FSA plan?
A: In most cases you can offer an FSA to your employees. Generally, self- employed individuals; partners and some subchapter S shareholders can’t participate in an FSA. You may want to check with your legal or tax advisor regarding your specific situation.
Q: Who may contribute to an FSA?
A: Employees contribute to their own FSA through pre-tax salary deduction. You can also contribute money to your employees’ FSAs.
Q: How much money can be contributed to a Dependent FSA?
A: A dependent care FSA is limited by law to:
- $5,000 for a single person or married filing jointly.
- $2,500 for married filing separately.
Q: How much money can be contributed to a Health FSA?
A: The 2017 limit on voluntary employee salary reductions for contributions to health FSAs is rising to $2,600. Employers should communicate the higher cap to employees during open enrollment and include the new limit in their open-enrollment materials—even if they must, at this late date, do so through a printed or online addendum.
Unspent funds. Since 2013, there have been two options for handling unused funds in a health FSA at year-end that employers can adopt:
- If a health FSA plan has a carryover feature, participants can roll over up to $500 of unused FSA dollars to the next year but will forfeit any excess over $500 at year-end. Any allowable amount that rolls over into the new plan year will not affect the maximum election that employees can make.
- Alternatively, an optional grace period can give employees an additional two-and-a-half months—through March 15—to incur new expenses using prior-year FSA funds. At the end of the grace period, all unspent funds must be forfeited to the employer.
Plans can offer either the carryover option or a grace period, but not both, or they can offer neither
Q: Can an FSA be offered with any Health plan?
A: Yes. An FSA plan can be offered alongside any Health medical or dental plan. However, according to IRS regulations if employees contribute to an HSA, they can only enroll in a limited-use FSA. A limited use FSA only reimburses expenses for:
- Preventive care.
Q: What are eligible medical expenses?
A: These are common eligible expenses:
- Doctor visits.
- Chiropractor fees.
- Prescription drug copays.
- Dental care and vision care not already covered by a health plan are also eligible health care expenses.
For more information on eligible health care expenses, see IRS Publication 502.
Q: What are eligible dependent care expenses?
A: These are common eligible expenses:
- In-home child care.
- Licensed daycare and preschool facilities.
- Before or after school programs.
- Elder care.
They can be used for an eligible dependent that is:
Either under the age of 13 or meets the “Qualifying Person Test”. The test is described in IRS Publication 503. Go to irs.gov to view IRS Publication 503.
Physically or mentally unable to care for oneself. And they live with the employee more than half the year.
Q: What are eligible transportation and parking expenses?
A: These are some common eligible expenses:
- Bus and light rail fares.
- Train and subway tickets.
- Parking ramps, lots, and tolls.
Q: Are there any regulations I need to know about?
A: Yes. Health care FSAs are governed by Internal Revenue Code, Section 125 when offered through a cafeteria plan. If the health care FSA isn’t offered through a cafeteria plan it’s subject to Internal Revenue Code Section 105. Usually they’re subject to ERISA, COBRA and HIPAA laws. Section 129 of the Internal Revenue Code is for dependent care FSAs.
Q: How often are claims for reimbursement paid?
A: Claims are processed and paid on a schedule set by the employer. You can select to have manually received claims paid:
- Weekly (on a set day of the week)
Debit Card transactions will process as employees use their cards.
Q: What reimbursement options does E Benefits Administrations offer my employees?
A: E Benefits Administration offers multiple options for your employees to receive reimbursement:
- Direct Deposit to the employees account
- Manual Checks mailed to the Employer for Signature
- Manual Checks mailed directly to the employees if an Authorized Employer Account Signature is supplied.
- Debit Card Usage
Q: Does E Benefits Administration offer the grace period option for health care and dependent care FSAs?
A: Yes. You can choose whether or not to have the grace period. The grace period allows employees up to two months and fifteen days beyond the end of the plan year. This lets employees submit reimbursement claims using the previous year’s FSA balance. In the case of a calendar year plan, the grace period may extend to March 15 of the following year. Expenses from January 1 through March 15 can be reimbursed from the previous year’s FSA.
Q: How does the grace period affect employees’ wanting to contribute to an HSA?
A: An employee who’s enrolled in a health care FSA with a grace period can contribute to an HSA if:
There’s no money left in the FSA at the end of the plan year, or The employee rolls over their health care FSA money into their HSA. This option only works if they had a health care FSA by September 21, 2006 and stayed with the same employer. For more information visit irs.gov and search for IRS Notice 2007-22, 2007-10 I.R.B. 670.
Q: Does E Benefits Administration administer the FSA and transportation or parking accounts?
A: Yes, E Benefits Administration administers the FSA in-house with our experienced staff. All customer service is provided by our top-ranked E Benefits Administration Member Services department.