Tipsheets
Flexible Spending Accounts
Flexible spending accounts
(FSAs) are commonly used to supplement traditional
health
insurance—not replace it. FSAs typically are funded by the employee
from pre-tax dollars and are used to pay for qualified medical expenses. Unlike
health savings accounts (HSAs) and health reimbursement
arrangements (HRAs), FSAs expire at the end of
the year and any unspent funds revert to the employer.
What FSAs Offer Employers
- Companies of any size can offer FSAs to
employees.
- FSAs can be used with traditional
health
insurance or high-deductible health plans
(HDHPs).
- Provided the money is spent on qualified medical
expenses (defined in section 213(d) of the Internal Revenue Code), the employer
benefits from federal and state income tax savings and payroll tax savings
(FICA).
- Companies can set the contribution limit to a
FSA.
After an employee has designated a contribution amount
for the year, that amount must be made available to the employee at the start
of the year. Although unspent balances are generally forfeited at termination,
if an employee leaves mid-year and has already spent the entire account, the
employer is liable for balance.
What FSAs Offer Employees
FSAs provide employees with the chance to lower their
taxable income by setting aside money from pre-tax dollars to pay for
out-of-pocket medical expenses such as co-payments, prescriptions, and
deductibles. However, because FSAs work on a "use it or lose it"
basis—meaning that unspent funds at the end of the year are returned to
the employer—employees should to estimate their eligible expenses
carefully.
Do you want to estimate your pre-tax savings by
participating in your company’s FSA health benefit? Use one of the many
free online
calculators
available on various Web sites to help you.*
*The Alabama Department of Public
Health provides this link as a resource only; it does not constitute an
endorsement for any company offering any product
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