Flexible Spending Account (FSA)
Title: Navigating Health Care Expenses: Unveiling the Flexible Spending Account (FSA)
What is a Flexible Spending Account (FSA)?
A Flexible Spending Account, commonly known as FSA, serves as a tax-exempt financial tool specifically designated to cover certain out-of-pocket healthcare costs. Employees contribute a portion of their income to FSA accounts with each paycheck, enabling them to submit receipts for qualified medical expenses and seek reimbursement from the accumulated funds.
Key Features and Usage:
- Annual Contribution Limit: There exists an annual contribution limit of $2,650 per year per employer.
- Use-It-or-Lose-It: Generally falling into the use-it-or-lose-it category, any unspent funds by December 31 do not roll over to the next year.
- Covered Expenses: FSA funds are commonly utilized to cover medical and dental copayments, coinsurance, prescription drugs, over-the-counter medications, and even medical equipment like first aid kits, reusable wraps, and crutches.
- Matching Contributions: Similar to 401(k) plans or savings accounts, organizations may have the option to make matching contributions to employees’ FSA accounts.
- Deadline Extensions and Rollovers: Organizations can offer an extension of up to two-and-a-half months to utilize the previous year’s funds or allow a rollover of up to $500 towards the next year’s balance.
Distinguishing FSAs from Health Savings Accounts (HSAs):
While both Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) involve employees setting aside funds from their paychecks for medical expenses, notable differences exist in their functionality and implementation requirements. Organizations offering these accounts need to educate their employees on these distinctions, providing clarity on the programs they offer.