Flexible Spending Account
The 2020 limit for contributions is $2,750.
Employers may offer a health Flexible Spending Account (FSA) as part of their employee benefits programs. The FSA is funded front loaded by the employer and the employee’s salary reduction repays the employer for the agreed amount. This money can be used to reimburse employees for expenses related to medical insurance deductibles and copays, out-of-pocket medical treatments or supplies, and dependent healthcare expenses.
When employees contribute to a flexible spending arrangement, no employment or federal income taxes are deducted from the contribution. Any contributions to an FSA by an employer are excluded from the employee’s gross income which reduces the tax payments of the employer. Both employee and employer save money when using an FSA!
Important features of the plan
All FSAs must meet certain legal requirements.
Only expenses that are incurred during the plan year can be reimbursed. “Incurred” means the date of service or purchase, it is not based on when the expenses are paid. For example, an expense is incurred in December 2019 when an individual visits the medical practitioner, not when the practitioner’s bill is received or paid by the patient in January 2020. Only 2019 funds could be used to pay for this visit.
Any money remaining in a flexible spending account at the end of the plan year cannot be carried over to the next year. The only exception is if the employer allows for the IRS maximum rollover of $500.
If an employee terminated with their employer, they would have access to the funds via claims for expenses incurred from the first day of the plan year to the date of termination. Card transactions end on the date of termination. Payroll contributions end with the former employee’s last paycheck.
Employees are not required to have any other insurance to participate. Unfortunately, self-employed persons cannot have a Health FSA.
An FSA is allowed under the Internal Revenue Code Section 125 and covers all pre-tax dollars for non-reimbursed medical, dental and dependent care expenses. Other items that may be covered include insurance premiums, deductibles, co-payments, and non-covered services.
What is the benefit of a Debit Card?
It conveniently helps the participant with cash flow
The card pays directly to the provider at the point of sale
It adds a convenience to accessing participant funds
Not all merchants have their card machine coded properly for the card to be approved. Transactions may not be automatically approved upon swiping your card at locations such as Target or Wal-greens that sell both eligible and ineligible items. Documentation requests may still occur for eligible items or services.