Flexible Spending Accounts (FSA)

What is it?
An FSA is a benefit plan designed to allow employees to put money aside for anticipated medical expenses, while receiving tax benefits. Funds can be used to reimburse qualifying medical expenses for the employee, spouse, or dependent children.

How are contributions made?
The most common type of FSA is funded entirely by the employee with pre-tax contributions. The employer is responsible for setting the annual maximum contribution amount. (NOTE: effective 1/1/13 the annual maximum cannot exceed $2500). The employee determines the amount they will contribute for a 12-month period usually on a monthly basis (up to the maximum set by the employer), but any unused funds do NOT rollover year to year (‘use it or lose it’).

How are distributions done?
The amount elected by the employee for the entire year must be made available for reimbursements on the first day of the plan year – whether funds have been contributed by the employee or not. Reimbursement is provided after acceptable documentation has been received (debit cards may also be available). EFFECTIVE 1/1/11: Reimbursements for over-the-counter drugs and medications will only be allowed with a prescription (insulin is exempt from this requirement).

Additional information regarding FSAs can be obtained by visiting the IRS website here.

Our expert staff can assist you with setting up a Flexible Spending Account benefit plan that meets the needs of your employees and organization.