What is a Flexible Spending Account (FSA)?
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How FSAs Work
A Flexible Spending Account (FSA) allows you 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 on 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 $500) or used for an additional 2 and 1/2 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/planned medical expenses for the PLAN YEAR to determine the amount to list as your annual enrollment.
How much can you contribute?
The minimum and maximum amounts you can contribute to the FSA are set by your employer, although the maximum allowed by the IRS in 2020 is $2,750.
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.