What is a Flexible Spending Account (FSA)?
An FSA lets you set aside money for eligible expenses before your employer deducts taxes from your paycheck. This means the amount of income your taxes are based on will be lowered resulting in a tax savings.
Money you contribute to an FSA through payroll is FICA, Federal, and State tax-free.
Your FSA dollars can be used during the plan year set your employer to pay for your qualified expenses and services.
How do FSAs Work?
A Flexible Spending Account (FSA) allows you to use pre-tax dollars to pay for eligible expenses related to medical, dental, or vision care for you, your dependent child, spouse, or other tax dependent!
FSAs are front-loaded, meaning the full amount you elect is available on the first day of the plan year or the effective date for your enrollment onto the plan.
Depending on how your employer set up the accounts, money left in your FSA at the end of the plan year can be rolled over (up to $570) or used for an additional 21/2 months (grace period). Some employers do not allow roll over or grace, but allow a “run out period” for claims to be filed after the end of the plan year. To avoid having too much money at the end of the plan year, you may want to spend time calculating your expected or planned medical expenses for the plan year to determine what amount to list for your annual enrollment.
How much can I contribute?
The minimum and maximum amounts you can contribute to your FSA are set by your employer. Although, the maximum allowed by the IRS in 2022 is $2,850.
Under the IRS rules that govern FSAs, the amount you may contribute is “per person, per employer.” If your spouse has access to a separate FSA through his or her employer, they can elect the IRS maximum through their employer and you can elect the maximum amount through your employer with no IRS penalty.
The amount that you elect for the FSA is divided evenly over the pay periods in the plan year.
Remember, the amount that is deducted per pay period is the amount of your annual election divided by the number of pay periods left in the plan year. Only employees that are enrolled for the entire plan year will have their deductions broken up over 12 months.
From the Department of the Treasury Internal Revenue Service
- Medical and Dental Expenses:
- IRS – Eligible Medical and Dental Expenses
- Health Savings Accounts and Other Tax-Favored Health Plans:
- IRS – Health Savings Accounts and Other Tax-Favored Health Plans
What is an FSA and how does it work?
Using your Prepaid Benefits Card for out of pocket expenses
If you have any specific questions about how an FSA can benefit you or what types of expenses are qualified under FSA, contact us!
We would love to help you!
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If you’re an employer or agent please contact: firstname.lastname@example.org
Call us between 8:00am and 5:00pm Monday through Friday: +1 (877) 941-5956
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