Health Insurance FSA - What Is It?
Understanding FSA Plans
A Flexible Spending Account (FSA) is an employer-established, tax-advantaged account funded by the employee.
Flexible Spending Accounts (FSAs) have always been a great way for employees to budget for out-of-pocket healthcare expenses. Only an employer can open a Flexible Spending Account and the employee owns the account. Only the employee can make contributions to the account, with limits set by the employer and contributions are made through pre-tax payroll deductions.
Funds from this account pay for qualified medical expenses with pre-tax dollars.
This account does not earn interest and it won’t reduce health insurance premiums, but it can reduce the out-of-pocket health care expenses of the account holder and lower an employees’ taxable income.
As of 11/11/14, the Internal Revenue Service announced the following new benefit plan limits for 2015:
Flexible Spending Account (FSAs) Limits
• Healthcare FSA: The annual maximum for Healthcare FSAs has increased from $2,500 to $2,550 for 2015.
• Dependent Care FSA: At this time, the IRS has not released information on contribution limit changes to these plans.
• Transit & Parking FSA: Contribution limits remain unchanged for 2015. The monthly limits are $250 for parking, $130 for transit and $20 for bicycle commuting.
F.S.A. definition from Healthcare.gov:
A Flexible Spending Account is a special account you put money into that you use to pay for certain out-of-pocket health care costs.
You don’t have to pay taxes on this money. This means you’ll save an amount equal to the taxes you would have paid on the money you set aside.
You can use funds in your FSA to pay for certain medical and dental expenses, including copayments and deductibles.
FSA's are available only with job-based health plans. Employers may make contributions to your FSA.
You can’t spend FSA funds on insurance premiums.
NOTE: The Department of Treasury has modified its use-it-or-lose-it rule to allow a limited rollover of FSA funds. Up to $500 of unused FSA funds may now rollover to be used during the following plan year. The new rollover rule is an additional option to the existing 2½ month grace period allowance. Employers may offer the grace period or the rollover option, but not both.
As always, be sure to consult your CPA and Plan Administrator on the rules for limits, carry-overs, and allowable deductions for every plan year.
F.S.A. Summary: An employer sponsored benefit that enables employees to set aside pre-tax dollars out of their paycheck to pay for eligible health care expenses. Monies put into the plan avoid both Federal Income Tax and FICA.
A Flexible Spending Account (FSA) allows consumers to deduct pre-tax dollars from their paychecks and deposit those funds in employer-sponsored accounts to pay for medical expenses. Consumers then submit expense receipts to healthcare administrators for reimbursement.
What types of purchases are FSA-eligible?
In addition to standard healthcare expenses, such as doctor visits and prescription drugs, FSA funds can be used for many over-the-counter items including first aid kits, blood pressure monitors, contact lens solutions and supplies, and home medical aids.
The IRS sets the guidelines for FSA product eligibility and individual FSA plans have the final determination of which expenses are covered by their FSA programs.