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Flexible Spending Accounts (FSA)

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Flexible Spending Accounts (FSA)
What is a Flexible Spending Account (FSA)?
  • Employees will have an opportunity to save money by using pretax salary dollars to pay for three types of eligible expenses.  Employers can offer employees all or any combination of the following components:  Pretax Premium Only Plan Account; Health Care Expense Reimbursement Account; or, Dependent/Day Care Expenses Reimbursement Account.
  • It's authorized under Section 125 of the Internal Revenue Code.
  • It enables an employer to reduce taxes and employee taxes on eligible expenses.

Employers should consult with their tax advisor when considering Flexible Spending Accounts (FSA) or any other tax-preferred product.

What are the Advantages of a Flexible Spending Account (FSA)?
  • Employers save FICA/Medicare taxes.
  • In most cases the savings generated by the Flexible Spending Account (FSA) will be more than enough to offset administrative fees.
  • Employees will save Federal, State, and FICA/Medicare taxes. 
  • Typical savings would be 30-40% (pre-tax) of the dollars elected by participants.
  • Significantly improve cash-flow and increase spendable income for participants.
  • Program is completely voluntary and provides desirable flexibility to participants.
  • The plan, effectively communicated, helps attract and retain employees.

What Medical Expenses are Eligible?

  • Health Care Expense Reimbursement Account includes medical expenses that are not paid by an insurance plan.  These include:  deductibles, coinsurance, eyeglasses, contact lenses, routine physicals, prescription drugs, dental expenses, orthodontia, and other expenses defined in section 213(d) of the Internal Revenue Code (IRC).

Who May Sponsor A Flexible Spending Account (FSA)?

  • Any corporation, sole-proprietorship, partnership, or S-corporatioan may sponsor a plan.   However, a sole proprietor may not participate in the plan nor may a partner or owner who owns more than 2 percent of an S-corporation.  Owners still benefit from the savings in payroll expenses generated by those employees who do participate.

Additional Plan Information

  • Employees who fail to use their entire elected contribution forfeit any unused amounts at the end of the plan year.
  • Employers must reimburse the full amount of the Health Care Flexible Spending Account claim up to the annualized amount of the contributions elected by the employee.  The employer runs the risk of disbursements exceeding payroll-deducted contributions if the employee terminates employment or changes family status prior to the end of the plan year.
  • There are restrictions on the ability of participants to change the amount they elected to contribute after the start of the plan year.  (A "qualifying change in family stutus" is required.)