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Frequently Asked Questions

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What is a flexible spending account(FSA)?

A flexible spending account lets you use before-tax income to pay for eligible medical or dependent daycare expenses. This can be a real advantage because the tax savings increases your spendable income. You will find it a cost effective way to help pay for many out-of-pocket medical expenses or dependent daycare expenses. The money can be used for expenses such as medical and dental plan deductibles and co-payments, certain over-the-counter medications, eyeglasses, contact lenses, orthodontics and other health-related expenses that may not be covered by your insurance plan. It is also a cost-effective way to pay for dependent daycare expenses on a before tax basis.

What do you mean by before-tax?

Before-tax means that the amount you contribute to your flexible spending account is not subject to federal, state, local, Social Security or Medicare (FICA) taxes. This can mean a savings of anywhere from 15% to 40%. The percentage depends on your individual tax bracket.

How does a flexible spending account actually work?

Begin by estimating how much you will need during the plan year to pay medical expenses not covered by your insurance plan or dependent daycare expenses. You will elect an annual amount for each account. Then you should divide your annual election amount by your number of pay periods for the plan year. This amount becomes your per-pay deduction and this amount will be deducted, before tax, in even amounts from each of your paychecks. The money is deposited into an FSA Premium Trust Fund. We always remind our participants that planning is key. You will need to carefully plan how much you want to contribute because you will forfeit any unused money left in your account at the end of the plan year.

Do I have to have a lot of expenses in order to participate?

No. Note: Your employer may set a minimum contribution amount for the year. Please see your Summary Plan Description for the limits that apply for your employer's plan. You may put aside enough money to cover what you reasonably expect to spend during the plan year. You want to try not to put more than the amount of money that you expect to need in the account because if you do not use the money, you will lose it. This is a provision that is mandated by the Internal Revenue Service. They are very specific about it. This is frequently referred to as “use it or lose it rule”. Your employer is not permitted to refund any part of the unused balance to you.

Remember it is definitely not your Company’s or the IRS’s plan that you forfeit money. Flexible spending accounts are offered as a benefit and we all want each employee to take full advantage of the benefits of participating. We want you to use all the money that’s deposited to your account(s). If you plan wisely you can get the most out of this benefit.

How do I get reimbursed for eligible expenses?

You must submit a reimbursement form and provide the required receipts and back-up documentation to support your claim. The IRS requires that the supporting documentation include:

Healthcare Reimbursement - Documentation needed
  • Name of the person receiving services
  • Date the service was provided
  • Description of the service provided
  • Charge for the service
Healthcare Reimbursement - Documentation needed
  • Name of the person(s) being cared for
  • Period the services cover
  • Federal Tax ID or Social Security Number for the person providing care
  • Charge for the service
The minimum reimbursement amount is $25. Smaller claims will be paid out when the total exceeds $25. A check or direct deposit EOB for the reimbursement will be mailed to you to the address on file.

What is a Qualified Change of Status? or Who is a qualified dependent?

There is a very simple and specific definition for a qualified dependent. An individual qualifies as a dependent under the health care spending account if they qualify as your dependent for federal tax purposes. This definition may be different from definitions regulating other company group benefit plans. Special rules for dependent status apply to the dependent care account. As with most guidelines pertaining to the plan, the Internal Revenue Service specifies these regulations.

Are my Social Security benefits affected by the FSA Plan?

Yes. Since the money deposited to your spending accounts is deducted from your pay before FICA taxes are figured, your future Social Security benefits will be slightly less than they would otherwise be. The reason is because Social Security benefits are based partly on the amount of FICA taxable wages you earn.

Generally speaking, the taxes you save today are usually more than the future benefits you may otherwise receive from Social Security. If you have questions or concerns, you should consult a financial advisor or check with the Social Security Administration.

Is the dependent daycare spending account or the federal income tax credit for dependent daycare expenses a better deal for most people?

We cannot guide you in this area. The decision between these two income tax reduction alternatives is not always clear because the impact is based on your own personal situation. We recommend that you consult an accountant or tax advisor to estimate which method is better for you. You may refer to www.irs.gov. for IRS publications number 17 and number 503 for information about the federal income tax credit.

What is an eligible expense for my health care spending account?

For the health care spending account, most health care expenses that are not covered by your medical or dental plans are considered eligible expenses. An example of these expenses would include items such as co-payments, deductibles, routine examinations and pain relievers. There could also be others but these are a few examples. Eligible expenses would also include most vision, hearing and counseling service expenses.

What is an eligible expense for my dependent care account?

For the dependent care account, eligible expenses are those associated with wages paid to an eligible provider who cares for your eligible dependents so that you and your spouse can work outside of your home, look for work or attend school on a full-time basis.

Some examples of eligible expenses are:
  • Nursery school and preschool
  • Day care facility fees (does not include transportation and lunches)
  • Childcare centers
  • Licensed nursery schools
  • Local day camps
  • Babysitters
  • Services of a housekeeper whose duties include, in part, providing for a qualified dependent
  • Summer day camp
Some examples of services not covered are:
  • Care provided by your spouse, your dependents for income tax purposes or your children under age 19
  • Expenses for which you claim a dependent care tax credit on your federal income tax return
  • Housekeeping expenses not related to dependent daycare
  • Overnight camp