What Employees Need to Know About Flexible Spending Accounts
It's time for employees to take control of their finances through the benefits offered at HR Service Partners! A flexible spending account (FSA) allows employees to stretch their benefits dollars and pay expenses with pre-tax dollars.
The best part? It's just as convenient as using a debit card.
What is an FSA?
With an FSA, an employee can deduct a portion of their regular earnings (up to $2850 for 2022 from the IRS) from their paycheck every pay period and designate that those funds be used for eligible medical and dental healthcare-related services. Amounts deposited to an FSA are non-taxable income and offer immediate tax savings.
Funds in an FSA can be utilized during a plan year for a range of pre-approved medical expenses and services. FSA account types include:
Healthcare FSA: this FSA provides reimbursement for out-of-pocket medical expenses.
Limited Purpose Medical FSA: this FSA works with a qualified high deductible health plan (HDHP) and Health Saving Account (HSA). A limited FSA allows reimbursement for vision and dental expenses only.
Dependent Care FSA: this FSA allows reimbursement of dependent care expenses, such as daycare incurred by eligible dependents.
FSA accounts can be easily accessed via a web portal, where employees can check balances, view claim history and submit reimbursement requests. With an issued FSA, an individual can pay for eligible services and products that are otherwise not covered by their health insurance.
What can I do with an FSA?
An FSA allows employees to enjoy significant tax savings with pre-tax deductible contributions and tax-free reimbursements for qualified plan expenses. With an FSA, an employee can quickly access funds with a pre-paid card or request funds to directly deposit to their bank account online or via a mobile app.
Accessing and utilizing a pre-paid card can reduce the hassle of paperwork and offer secure account access through a Consumer Portal available around the clock.
Employees can manage their FSA through an easy-to-use mobile app where they can file online claims, stay up to date on balances, and get answers about their benefits questions in a single click.
Is an FSA right for me?
Ultimately, the individual must decide if an FSA is right for them and their family. It is important to note that the amount an employee saves from an FSA depends upon:
The amount they set aside.
The employee's annual earnings.
If they pay Social Security taxes.
The number of exemptions and deductions claimed on their tax return.
The employee's tax bracket and state/local tax regulations.
For example, one of the most common FSA's, a Healthcare FSA, offers the following benefits for an employee and can save them money if they or their dependents:
Have out-of-pocket expenses including co-pays, coinsurance, or deductibles for health, prescription, dental or vision plans.
Have a health condition requiring purchasing medication on a regular basis; wears glasses or contact lenses, or are planning LASIK surgery.
Need orthodontic dental care, such as braces or dental expenses not covered by their insurance.
It's imperative that employees know and understand all the benefits available for them and their families. Not only does an FSA help individuals save an average of 30% on healthcare costs, but it also may help cover out-of-pocket medical and dental expenses uncovered by their health insurance.
For 2022, the IRS has increased the contribution limit to $2,850. Employees should contact our team with any questions regarding FSA's.