Flexible Spending Accounts

Mary Hao, Director, Human Resources

A flexible spending account (FSA) is a tax-advantaged account that allows employees to use pre-tax dollars to pay for qualified medical (Health FSA) or dependent care expenses (DCAP). During Open Enrollment, you choose how much money you want to contribute to an FSA for the upcoming plan year. You will be able to access these funds throughout the year for qualified expenses. Both the Health FSA and DCAP plans are administered by ConnectYourCare. 

Enrolling in a Health FSA or Dependent Care FSA

You must re-enroll in Flexible Spending Account(s) every Open Enrollment if you want to continue this benefit. To enroll in the Health FSA or Dependent Care FSA, complete the enrollment form. The Benefits division in Human Resources will send you confirmation of your FSA enrollment prior to the close of Open Enrollment. If you do not receive confirmation, it is your responsibility to contact the HR Benefits representative assigned to your department prior to the close of Open Enrollment to confirm your FSA enrollment. Remember, if you do not complete and submit your enrollment form during this Open Enrollment, you will not have an account for the upcoming plan year, unless you are covered by the carry forward, where up to $500 of unused FSA funds automatically rollover into the next plan year. For more information see the ConnnectYourCare enrollment guide. The effective date for FSAs is January 1.

 

Eligible Expenses

Health FSAs can pay for health care expenses with pre-tax funds, including prescriptions, some over-the-counter items, health insurance deductibles, and coinsurance. FSA funds may even be used for eligible expenses for your spouse or tax dependents. Human Resources has a listing of Health FSA Expense Examples available online. Be sure to familiarize yourself with ineligible FSA expense examples too.

A Dependent Care FSA can pay for qualifying dependent care expenses with pre-tax funds, such as certified day care, pre-school, day camp, before/after school programs, late pick-up fees, and placement fees for a dependent care provider (i.e. au-pair and qualifying custodial care for dependent adults). Human Resources also has a listing of eligible Dependent Care Account Expense Examples.

What is the Advantage of a Pre-Tax Program?

Pre-tax means the dollars you use for eligible expenses are not subject to social security tax, federal income tax and in most cases, state and local taxes. Money you would have paid in taxes can be used to pay qualified medical and/or childcare expenses. You can save on every expense you pay through the pre-tax programs and increase your take home pay. It’s a tax break you cannot afford to ignore! Here's an example of savings potential:

Illustration of Tax Savings Using Health FSA
Description Without FSA With FSA Advantages
Gross Pay $35,000 $35,000
Contribution to FSA Before Tax $0 ($1,500) Contribution is Pre-tax
Subtotal: Taxable Income $35,000 $33,500 Less Taxable income
Estimated Taxes ($7,852) ($7,362) Less Paid in Taxes
Health Care Expenses ($1,500) ($1,500)  
Tax Free Plan Reimbursement $0 $1,500 Tax Free
Total: Net Income After Taxes & Expenses $25,648 $26,138
Difference   $490 More money in your paycheck

Determining What to Set Aside?

Before enrolling, be sure to work out a detailed estimate of the eligible expenses you are likely to incur for the plan year ahead. Based on federal law, you may carry forward to the next plan year up to $500 in unused funds in your Health FSA; any un-reimbursed funds in excess of $500 are forfeited at the end of the plan year and cannot be returned to you.  The rollover money remains in your account until you spend it, even if you do not elect a Health FSA in the following years. There is no rollover for the DCAP, so plan carefully.  A flexible spending account worksheet is available to help you calculate your eligible health and dependent care expenses.

Health FSA Rules

  • You must re-enroll in FSAs every Open Enrollment if you want to continue this benefit for the upcoming plan year.
  • The IRS requires that all FSA purchases be verified as eligible expenses. Sometimes, purchases are automatically verified when you use your card. Other times, ConnectYourCare will request itemized receipts. Always save your itemized receipts!
  • You can receive reimbursements up to the full amount of your annual election regardless of what you have already contributed.
  • Health FSA contributions are limited by the IRS to $2,550 per person in 2017. This means you may only set aside up to $2,550 in a calendar year on a pre-tax basis.
  • You cannot change FSA contributions during the January to December plan year unless you have a qualifying event.

Using Your Health FSA

There are two ways to pay for health care expenses with your Health FSA:

  1. Use your FSA payment card:  Provide your card to a qualified merchant or provider, and they will swipe your card like any other credit or debit card to pay for your purchase. There is a preset PIN associated with your card, which are the last 4 digits of your card number. To select a different PIN, call Card Services at 1-888-999-0121. Remember, even when you use your card, IRS rules require purchases be verified for eligibility. Sometimes ConnectYourCare can do that automatically, but sometimes documentation is needed. Always save your documentation. Your card has been programmed to work only at merchant locations that are designated as health care merchants based on their Merchant Category Code (MCC). Examples of qualified merchants include doctor’s offices and hospitals. 
  2. Pay with personal funds and request reimbursement: Pay using your own personal credit card, cash or check and keep your itemized receipt as documentation. Then, log on to your online account to file for reimbursement and upload your documentation. You can receive reimbursement funds via check or direct deposit. Set up direct deposit online to receive quicker reimbursements.

Requesting Reimbursement

Sometimes ConnectYourCare receives a claim directly through your health insurance plan or through your payment card. In this case, there is no need for you to enter a separate request unless more documentation is requested. To request reimbursement for expenses paid using your personal funds, you will need to submit a claim. For more information on submitting claims and proper documentation, see the Claims Made Easy document.

Questions about FSAs? Contact ConnectYourCare at 1-877-292-4040.

Dependent Care Assistance Program (DCAP) FSA Rules

  • Enrollment is required each year. You must re-enroll in DCAP every Open Enrollment if you want to continue this benefit.
  • The IRS requires that all DCAP reimbursements be verified as eligible expenses. This includes amounts that reoccur each month.
  • The IRS limits contributions to $5,000 per year per family. This means you may only set aside up to $5,000 in a calendar year in a DCAP FSA on a pre-tax basis.
  • Unlike the health FSA, you may only receive reimbursement from your DCAP account equal to the amount you have actually deposited.
  • You cannot change DCAP FSA contributions during the January to December plan year unless you have a qualifying event.

Using Your Dependent Care FSA

If you have a dependent care account, you should pay for your qualified dependent care expenses using personal funds and request reimbursement from your account. You will need to submit your itemized receipt as documentation. Remember, receipts for these expenses must include the name of the dependent and the tax identification number of the dependent care provider.

Helpful FSA Resources