October 2017: Flexible Spending Accounts

By:  Raymond Kirk, Ph.D., Federal Benefits Specialist

Published:  October 20, 2017

 

Flexible Spending Accounts (FSA) give employees the opportunity to save hundreds, potentially thousands, of dollars a year on health care and dependent care expenses. Yet, fewer than 20% of employees take advantage of them. There are two types of FSAs: Health Care (HCFSA) and Dependent Care (DCFSA). Both operate the same way.  Employees have money withheld from their pay and deposited in their FSA accounts. When you have eligible expenses they are paid out of the money withheld from your pay. The benefit is the money is put into your FSA account on a pre-tax basis and you never have to pay the taxes.

If you put $1000 dollars into an FSA, you would have the entire $1000 to spend on eligible expenses. If you don’t have an FSA account, you would pay Federal income taxes, state and local income taxes, Social Security taxes and Medicare Part A taxes on the income. After all the taxes are withheld you might have $750 (or less depending on your tax bracket) in your pay check to spend on those expenses. The amount of your pay that would have gone to taxes is never collected and is free money for you.
Eligible HCFSA expenses include:
  • Medical expenses: co-pays, co-insurance, and deductibles
  • Dental expenses: exams, cleanings, X-rays, and braces
  • Vision expenses: exams, contact lenses and supplies, eyeglasses, and laser eye surgery
  • Professional services: physical therapy, chiropractor, and acupuncture
  • Prescription drugs, insulin, and prescribed over-the-counter medicine
  • Over-the-counter health care items: bandages, pregnancy test kits, blood pressure monitors, etc.
DCFSAs allow reimbursement for:
  • Care for your child who is under age 13
  • Before and after school care
  • Babysitting and nanny expenses
  • Daycare, nursery school, and preschool
  • Summer day camp
  • Care for your spouse or a relative who is physically or mentally incapable of self-care and lives in your home
You can find the complete list of eligible expenses on the OPM FSA website.
The FSA program has partnered with several Federal Employees Health Benefits (FEHB) and Federal Employees Dental Vision Insurance Plans (FEDVIP) to implement paperless reimbursement, which automatically reimburses you for eligible health care, retail pharmacy, dental and vision expenses under your HCFSA. Paperless reimbursement eliminates the need for you to submit a claim manually or online to FSAFEDS for many of your out-of-pocket health care expenses.
The limits on FSA deductions are $2600 for HCFSAs and $5000 for DCFSAs. You can access the full amount of your HCFSA account on day one of the FSAFEDS plan year. The HCFSA is a per person limit so you and your spouse can both put aside $2600. The DCFSA is a family limit so you and your spouse can split the amount or one of you can put the entire $5000 in the DCFSA.
In the past some employees have been hesitant to participate in an FSA because there was a “use it or lose it” rule meaning if you didn’t use your entire account during the plan year you lost any money remaining in your account. The “use it or lose it” rule has been changed to a rollover rule. Now, you can rollover an unused balance of up to $500 from one year to the next and have the entire year to use the entire rollover amount.
Enrollment in FSAs is during the fall Benefits Open Season each year. This year Open Season runs from November 13 to December 11, 2017. You can find more information about FSAs at: www.fsafeds.com and on the Office of Personnel Management Open Season web pages.
This Open Season look into enrolling in an FSA and you can start saving additional money next year.

Dr. Kirk, Federal Benefits Specialist is a former Federal employee with over 40 years of Federal Service, 34 of which were spent with the Office of Personnel Management.