All About FSAs

A L L A B O U TF S A s

W W W . A U S T I N B E N E F I T S . C O M

A FLEXIBLE SPENDING ACCOUNT(FSA) IS A TAX-FREE ACCOUNTTHAT REIMBURSES EMPLOYEESFOR MEDICAL OR DEPENDENT

CARE EXPENSES.FSAS ARE USUALLY OFFERED

THROUGH A SECTION 125(CAFETERIA) PLAN.


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T Y P E S O F F S A sThere are two types of FSAs , eachwith i ts own ru les and l imi tat ions :

-Health FSA-Dependent Care FSA*Note : An employee can have both types , but they must bekept separate ( funds f rom one cannot be used to re imbursethe o ther t ype o f expense ) .

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W H O I S E L I G I B L E F O RA N F S A ?

-Any employee is e l ig ib le to havean FSA, i f h is or her employer of fersi t .

-For hea l th FSAs , employees do notneed to be covered by a h ighdeduct ib le hea l th p lan(HDHP) to bee l ig ib le (un l ike HSAs) .

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C O N T R I B U T I O N SBoth the employer and employeecan contr ibute to an FSA.

Employees contr ibute money v iapayro l l deduct ions through aSect ion 125 (cafeter ia ) p lan.

Employee des ignates how much to contr ibutefor the year dur ing enro l lment .Money is typ ica l ly deducted in equalinsta l lments each pay per iod.Employees cannot change the i r e lect iondur ing the year , un less there i s a change inemployment or fami ly s tatus .

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T A X T R E A T M E N TEmployee contr ibut ions are madepretax (no employment or federa lincome taxes are deducted) .Employer contr ibut ions are notsubject to F ICA tax or federa l orstate unemployment taxes .Employee contr ibut ions are notinc luded in the employee ’s grossincome.Distr ibut ions are tax- f ree (must beused for qual i f ied expenses) .

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Employers have the option to offer agrace period of up to 2½ months to use

remaining FSA funds.

If this period is offered, employees canpay qualified expenses that are incurredthrough March 15 using FSA funds from

the previous calendar year.

Employers also have the option ofallowing employees to carry over up to$500 of unused funds from one year to

the next.

Any amount that is carried over does notcount toward the maximum contribution

limit.

Grace Period1

Roll Over2

There are two possible exceptions to this rule,but employers are not required to offer either,

and they cannot be combined.

ExceptionsUSE IT ORLOSE IT

T h e e m p l o y e e

o w n s t h e

a c c o u n t , b u t

t h e f u n d s

e x p i r e a n d t h e

e n d o f t h e y e a r .


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H E A L T H C A R EF S A s


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A HEALTH FSA REIMBURSESEMPLOYEES FOR MEDICAL AND

DENTAL EXPENSES.FOR TAXABLE YEARS BEGINNING IN2015, THE DOLLAR L IMITATION ON

EMPLOYEE SALARY REDUCTIONCONTRIBUTIONS TO A HEALTH FSA

WILL INCREASE FROM $2,500 TO$2,550.


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H E A L T H F S A : E L I G I B L E E X P E N S E SHeal th FSAs may re imburse qual i f ied medica lcare expenses not covered by the hea l th p lan.Substant iat ion is required f rom a th i rd partyto make sure expenses are e l ig ib le forre imbursement .The IRS def ines qual i f ied medica l expenses asthose pa id for the d iagnos is , cure or t reatmentof a d isease , and must be used pr imar i ly toa l lev iate a phys ica l or menta l defect or i l lness .More informat ion can be found atwww. i rs .gov . Employers can a lso def ine “e l ig ib le medica lexpenses , ” w i th in the IRS gu ide l ines .A hea l th FSA may a lso re imburse medica lexpenses for a spouse or dependent .

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H E A L T H F S A : E L I G I B L E E X P E N S E S

Deduct ib le and copayments for group heal thand/or denta l p lanEye exams, eyeg lasses and contact lensesHear ing exams and hear ing a idsExams and t reatments that exceed the annualf requency covered by the p lan (example :phys ica l exams in excess of one per year )Prescr ipt ion drugsMedica l equipment and suppl ies (such ascrutches , bandages and d iagnost ic dev ices )Insu l in and b lood sugar test k i ts

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Examples of eligible expenses include:

H E A L T H F S A : I N E L I G I B L E E X P E N S E S

Over- the-counter drugs , un less accompaniedwith a prescr ipt ion ( insu l in i s an except ion)Premiums for independent insurancecoverage or MedicarePremiums for group heal th coverage underthe spouse ’s employerE lect ive cosmet ic surgery (un less to repair acongeni ta l abnormal i ty or in jury or to restorebodi ly funct ion)*An except ion i s breas t reconstruc t ion surgeryfo l lowing a mastec tomy

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Examples of ineligible expenses include:

The employee may need to provide areceipt to verify that an expense is eligible.

If the card is used for a nonmedical expense or the employee cannotprovide documentation when requested, the claim will be denied andemployees will have to pay the amount out of their pocket.

Under health care reform, there are restrictions for how an employeemay use an FSA debit card when purchasing over-the-counter drugswith a prescription. Visit www.irs.gov for more information.

M A N Y H E A L T H F S A S P R O V I D E D E B I T C A R D S F O RE M P L O Y E E S T O U S E , R A T H E R T H A N H A V I N G T O

S E E K R E I M B U R S E M E N T A F T E R T H E F A C T .

DEBIT CARDS


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WHAT IF AN EMPLOYEE LEAVES?I F AN EMPLOYEE LEAVES OR IS

TERMINATED WITHIN THE PLAN YEAR,THE HEALTH FSA IS ST ILL AVAILABLE TOHIM OR HER ONLY IF COBRA IS ELECTEDAND CONTRIBUTIONS ARE CONTINUED.

HOWEVER, THE EMPLOYEE MAY NOTTAKE THE ACCOUNT WITH HIM OR HER

—TYPICALLY , IT IS ONLY AVAILABLETHROUGH THE END OF THAT PLAN YEAR

WHEN COBRA IS ELECTED.


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D E P E N D E N T C A R EF S A s


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D E P E N D E N T C A R E F S AA dependent care FSA can pay for the careof dependent ch i ldren under age 13 by ababys i t ter , day care center , or before-school or a f ter -school program. Care for a d isabled spouse , parent or ch i ldis a lso e l ig ib le i f the ind iv idual l i ves wi ththe employee and cannot care for h imsel f orherse l f .Care must be prov ided to keep employeeand spouse ga infu l ly employed. Care must be g iven dur ing normal work inghours ( for example , babys i t t ing on aweekend for recreat ional t ime is nota l lowed) .

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THE ANNUAL CONTRIBUTION LIMITFOR A DEPENDENT CARE FSA IS $5,000

($2,500 FOR A MARRIED INDIVIDUALFILING TAXES SEPARATELY) , THE

EMPLOYEE’S EARNED INCOME OR THESPOUSE’S EARNED INCOME

—WHICHEVER IS LOWEST OF THETHREE.

DEPENDENT CARE EXPENSES CANNOT BEREIMBURSED UNTIL THEY ARE ACTUALLY

INCURRED (WHICH CAN BE AN ISSUE WHENCHILD CARE CENTERS “PRE-BILL” FOR

SERVICES) .


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D E P E N D E N T C A R E F S AExpenses must be substant iated by ath i rd party to make sure they aree l ig ib le dependent care expenses .

Debi t cards may be used fordependent care FSAs , but they are notas popular as hea l th FSA debi t cards . Cannot be used unt i l expense is incurred. Th is

is a problem when ch i ld care centers pre-b i l lfor serv ices .Not pract ica l for nannies , babys i t ters or smal lch i ld care prov iders wi thout e lectronicpayment systems.

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A L L A B O U T F S A s


T H A N K Y O U T O Z Y W A V E , I N C . F O R O R I G I N A L P R E S E N T A T I O N M A T E R I A L

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All About FSAs