Flexible Spending Accounts
The Flexible Spending Accounts (FSAs) offer you a significant tax savings opportunity. They allow you to pay for eligible health care and dependent care expenses using tax-free dollars — money taken out of your paycheck before income or Social Security taxes have been calculated.
| Account Type | Eligible Expenses | Annual Contribution Limits | Benefit |
|---|---|---|---|
| Health Care Flexible Spending Account | Most medical, dental and vision care expenses that are not covered by your health plan (such as copayments, co-insurance, deductibles, eyeglasses and doctor-prescribed over-the-counter medications) | Maximum contribution is $2,550 per year | Saves on eligible expenses not covered by insurance, reduces your taxable income |
| Dependent Care Flexible Spending Account | Dependent care expenses (such as day care, after-school programs or elder care programs) so you and your spouse can work or attend school full-time | Maximum contribution is $5,000 per year ($2,500 if married and filing separate tax returns) | Reduces your taxable income |
Health Care Flexible Spending Account
This plan allows you to set aside pre-tax dollars to help pay for certain out-of-pocket health care expenses. You can contribute up to $2,550 per year. Important: Over-the-counter medications are no longer covered without a prescription. Note: If you are a participant in an HSA, you are not eligible for the Medical Care FSA reimbursement account.
FSA limits, grace periods, and carry-overs
You can put up to $2,550 into an FSA each year. You generally must use that money within the plan year. But your employer may offer one of 2 options:
- It can provide a “grace period” of up to 2 ½ extra months to use the money in your FSA.
- It can allow you to carry over up to $500 per year to use in the following year.
Your employer can offer either one of these options but not both. It’s not required to offer either one. Learn more about these FSA options.
At the end of the year or grace period, you lose any money left over in your FSA. So it’s important to plan carefully and not put more money in your FSA than you think you’ll spend within a year on things like copayments, coinsurance, drugs, and other allowed health care costs.
Spending FSA funds on medications
You can spend FSA funds on prescription medications, as well as over-the-counter medicines with a doctor’s prescription. Reimbursements for insulin are allowed without a prescription.
FSAs may also be used to cover costs of medical equipment like crutches, supplies like bandages, and diagnostic devices like blood sugar test kits.
Dependent Care FSA
A dependent care FSA helps reimburse you for the work-related cost of care for a qualifying dependent. A qualifying dependent is:
-
A tax dependent of yours who is under age 13 , or
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Any other tax dependent of yours, such as an elderly parent, who is physically or mentally incapable of self-care and has the same principle residence as you
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A spouse who is physically or mentally incapable of self-care and has the same principle residence as you
For additional information, refer to Publication 503 on the IRS website at www.irs.gov for more information.
Limited Purpose FSA
A limited-purpose health flexible spending account (referred to as a limited-purpose FSA) is much like a typical, general-purpose health FSA. However, under a limited-purpose FSA, eligible expenses are limited to qualifying dental and vision expenses for you, your spouse, and your eligible dependents.
IRS rules do not allow you to contribute to a health savings account (HSA) if you are covered by any non-qualifying health plan, including a general-purpose health FSA. By limiting FSA reimbursements to dental and vision care expenses, you (or your spouse) remain eligible to participate in both a limited-purpose FSA and an HSA. Participating in both plans allows you to maximize your savings and tax benefits.
And depending on how your limited-purpose FSA plan is set up, you may be able to carry over up to $500 of unused funds to the following plan year.