Filling in the Blanks of FSAs

There’s no shortage of acronyms in the health insurance industry, and it’s hard to keep them all straight. You’ve probably heard of FSAs before but may not know what they entail.?

A?Flexible Savings Account, or FSA, is an employer-sponsored health benefit that allows eligible employees to save pre-tax money to pay for out-of-pocket healthcare costs.?

Eligible expenses include certain over-the-counter medications, medical care, vision, and dental costs not covered by your health insurance plan. If you use your FSA dollars to cover eligible expenses for you, your spouse, or your dependents, you don’t have to pay taxes on the money.

Employees select the amount they want to put into the account for the calendar year, and money is added to the account each month through pre-tax contributions from the employee.

The entire amount the employee elects to save and contribute is immediately available once the account is open for the year. In other words, the account can be partially funded for the employee to use the total funds.

FSAs have annual limits on how much a person can contribute to the account. In 2023, for example, the limit will be $3,050. The IRS typically modifies these limits annually to account for the cost of living. The inflation-adjusted amount will allow you to put more tax-free dollars toward qualified healthcare items.?

Note that self-employed workers are not eligible for FSAs.

FSA Benefits:

- Can be used for deductibles, copays, medication, and other healthcare-related out-of-pocket costs

- All money deposited is untaxed

- Most FSA accounts come with a debit card

- Employees can spend the money in the account before it’s fully funded

- Employees can roll over an employer-set amount of unused dollars for a specific time.?

Drawbacks of FSAs:

- Even though you may be able to carry over some funds, the total amounts do not carry over year to year. Therefore, FSA’s have an element of "use it or lose it" for employees.

- There is a potential benefit for employers, who can keep the money for their company if it goes unused, but there are limitations to how the employer can use these funds.

Strauss Can Help

If you are considering offering an FSA to your employees, we are here to help. To learn more, contact us here.