What is a Flexible Spending Account?

Sometimes referred to as “cafeteria plan” or a Section 125 plan- an FSA allows employees to set aside a certain amount of their paycheck into an account before paying income taxes, thus lowering taxable income (also lowers FICA matching by the employer). During the year employees have access to this account to reimburse themselves for IRS qualified medical expenses not typically covered by a health plan.

When feasible, this is a great benefit that employers can offer, allowing employees to use tax-free dollars for known expenses, proactively planning the year, realizing an increase in spending power, as well as substantial tax savings.

Once deposited (even if employers choose to contribute a certain amount to the FSA), FSA money belongs to the employee. Should an employee file a claim against FSA money and then separate employment, the claim must be paid, regardless of whether or not the employee has fully funded the account to cover the claim. However, FSA money is “use it or lose it.” Funds must be used before a narrow window following the close of the plan year or the money goes back to the employer.
Common reimbursable expenses can include:

• Deductibles, copays, and coinsurance
• Prescription drug copays
• Expenses excluded from the health plan*
• Dental services and orthodontia
• Weight loss programs (associated with a specific disease)
• Chiropractic services
• Mental health care copays or out of pocket expenses
• Smoking cessation programs
• Medically necessary over-the-counter medications (such as antacids, aspirin associated with a specific disease)
• Adult and childcare services
• Much more

To learn more about Flexible Spending Accounts, please contact one of our licensed, professional agents today

* Refer to IRS Publication 213(d) for a full listing of all qualified expenses