FSA? What Is a Flexible Spending Account?
One of our favorite things to do here at Zupnick Associates is to break down acronyms and technical jargon, and understand them one at a time. Isolating a single aspect of a whole concept can help us understand the bigger picture. Of course, we know that fully understanding what we are obligated to do as businesses always saves us money in the long run, right? Let's look at what a flexible spending account is.
A Flexible Spending Account (FSA), is a much-mentioned feature throughout any and all healthcare packages, programs, regulations, and acts like the Affordable Care Act.
FSA = Flexible Spending Account
FSA stands for Flexible Spending Account. Like the name insinuates, an FSA acts as an escrow account between employer and employee - except it’s also tax-free. An FSA is an arrangement between employer and employee for the employee to be able to pay out-of-pocket medical expenses with untaxed dollars.
How It Works
A limit is set by the employer, but the employee chooses how much money they want to put into the account. Since January of 2018, employees cannot contribute more than $2,650 to their FSA per year, but there is no such limit for employers’ contributions.
Before 2018, employers could choose to not allow the remaining balance in the FSA to carry over year after year, but since January, modifications have been made. The sponsor of the health plan determines whether or not any remaining money in the FSA will carry over to the next calendar year or will be forfeited - up to $500.
Payments that can be made using the FSA can include copays, deductibles, and various medical services and products – from dental and vision care, to eyeglasses and hearing aids.
Those are the facts.
This is where the subject becomes a debate of opinion; ultimately, is it worth it to create an FSA when you’re the one contributing to it?
As the employer, it’s worth it for the relationship it will improve between yourself and your employee, you retain the power of setting the forfeiting rule back in place, and your employees get the comfort of knowing they’re being cared for.
As the employee, they must weigh the benefits of paying out-of-pocket expenses with tax-free money against the risk factor of forfeiting, and simply not having access to any submitted funds if the expense is not medical related.
Where do you stand? Leave your response in the comments!