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Frequently Asked Questions About Flexible Spending Accounts

What is a Flexible Spending Account (FSA)?
An FSA allows an employee to direct a portion of earnings to usually pay for qualified medical expenses, dependent care, or other expenses.
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Who can participate in a Flexible Spending Account?
Health FSAs are employer-established benefit plans. These can be offered along with other employer-provided benefits as part of a cafeteria plan. Employers have complete flexibility to offer various combinations of benefits in designing their plan. Employees do not have to be covered under any other health care plan to participate.

Self-employed persons are not eligible for an FSA.

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What are the rules governing contributions to an FSA?
Employees elect an amount to be voluntarily withheld from their pay. This is sometimes called a salary reduction agreement. Employers have the option to contribute or not contribute to the FSA.

No federal income tax or employment taxes are paid on the amounts the employee and employer (if applicable) contributes to the FSA. Contributions are done on a pre-tax basis. That said, employer contributions to provide long-term care insurance is required to be included as income.

Each employee must designate how much she or he wants to contribute. Employers then deduct amounts usually equal to the annual allowance divided by the number of annual pay periods. Employees cannot change or revoke the annual election unless there's a change in the employees' employment or family status as defined by the plan.

Employees and employers have no limits on the annual contributions to the accounts. None the less, the plan still must declare either a maximum dollar amount or maximum percentage that can be contributed to the health FSA. However, please note that for the 2017 tax year, FSA contributions through salary reductions are limited to $2,600.

Lastly, contributed amounts not spent by the end of the plan year generally are forfeited.

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Would I fund an FSA with pre-tax or post-tax dollars?
Pre-tax dollars
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What's the difference between HSAs and the flexible spending accounts? It seems they are for the same purpose.
The tax benefits of both plans are very similar, but there are several differences. The biggest and most important difference is that your HSA balances can roll over from year to year and continue to grow tax-deferred.

Money in your flex plan must be spent by the end of the plan year or you lose it. That may sound like a big negative, but flex plans can save you a lot of money even if you don't spend every dollar. Also, you can open a flexible spending account only if the plan is offered by your employer, and you don't need to have a high-deductible health insurance policy.

Legislation passed by Congress in 2006 will let you make a one-time transfer of funds tax free from a flexible spending account to an HSA. Changes to the law also will allow individuals to make a one-time tax-free direct transfer of funds from an IRA to an HSA (up to the HSA annual contribution limit).

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If my employer offers both, can I fund my flexible spending plan too?
No. You cannot have an HSA if you use the flexible spending account to pay healthcare costs or if you have other medical coverage (say, through a spouses policy). However, if your flex plan restricts reimbursements to wellness care (such as annual physicals) and vision and dental care, you can have an HSA too.
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If I set up an FSA through my employer, what happens if I switch jobs?
Any contributions made to your FSA, if not used, remain with the employer.
For example:
Annual declared contribution: $650 with 26 payroll deductions of $25 per pay period
Job ends after 20 pay periods and YTD amount contributed at time of departure is $500
YTD eligible health expenses reimbursed at time of departure $250 then amount fortfeited to ex-employer is $250

That said, check your plan docuemnt as perhaps there is a COBRA for FSA that allows you to continue your account with your ex-employer.
If the scenario changes and the "YTD eligible health expenses reimbursed at time of departure" are $650, then you have actually gained $150 worth of coverage at no cost to yourself.

Lastly, employers generally do not pursue this "lost" amount but can, if they choose, attempt to retrieve reimbursement from the employee.

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What expenses are eligible for payment by a Health FSA?
The following are some of the medical related expenses that CAN be paid from an HSA account:

Abortion

Drug Addiction

Medical Services

Acupuncture

Drugs

Medicines

Alcoholism

Eyeglasses

Nursing Home

Ambulance

Eye Surgery

Nursing Services

Artificial Limb

Fertility Enhancement

Operations

Artificial Teeth

Guide dog or other animal

Optometrist

Bandages

Health Institute

Osteopath

Breast Reconstruction Surgery

Health Maintenance Organization

Oxygen

Birth Control Pills

Hearing Aids

Psychiatric Care

Braille Books and Magazines

Home Care

Psychologist

Capital  Expenses

Home Improvements

Special Education

Car

Hospital Services

Sterilization

Chiropractor

Insurance Premiums

Stop Smoking Programs

Christian Science Practitioner

Laboratory Fees

Therapy

COBRA Continuation Health

Lead-based paint removal

Transportation

Coverage

Legal Fees

Tuition

Contact Lenses

Lifetime care advance payments

Vasectomy

Crutches

Lodging

Weight Loss Program

Dental Treatment

Long Term Care

Wheelchair

Diagnostic Devices

Meals

X-Ray

Disabled Dependent Care Expenses

Medical Conferences

Medical Information Plan

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What expenses are not eligible for payment from a Health FSA account?
As of January 1, 2011, over-the-counter medications are allowed only when purchased with a doctor's prescription, with the exception of insulin. Over-the-counter medical devices, such as bandages, crutches, and eyeglass repair kits are allowable.

The following are some of the expenses that CAN NOT be paid from a Health FSA account:

Baby Sitting

Funeral Expenses

Nonprescription Drugs

Childcare

Future Medical Care

Nutritional Supplements

Controlled Substances

Health Club Dues

Personal Use Items

Cosmetic Surgery

Health Savings Account

Teeth Whitening

Dancing Lessons

Household Helper

Veterinary Fees

Diaper Service

Illegal Operations

Weight Loss Program(cosmetic)

Flexible Spending Account

Maternity Clothes

Medications from other Countries

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