Understanding your flexible spending account (FSA)
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A flexible spending account (FSA) is a tax-free account that allows you to pay for essential expenses. There are two types:
- Health Care FSA -- Use tax-free savings to pay for health care expenses that are not covered, or partially covered, by your medical, dental, and vision insurance plans.
- Dependent Care FSA -- Tax-free savings can help you pay for child/dependent care expenses.
By contributing a portion of your paycheck to an FSA on a pre-tax basis, you save on the cost of eligible expenses you are already incurring.
When you enroll in an FSA, you decide how much to contribute to the account for the entire plan year. The money is deducted from your paycheck pre-tax (before federal and state income taxes and FICA taxes are deducted) in equal amounts over the course of the plan year. After you incur expenses that qualify for reimbursement, you submit claims (reimbursement requests) to ASIFlex, the university's FSA administrator, to request tax-free withdrawals to reimburse yourself for these expenses. You may also use an ASIFlex debit card to pay for your Health Care FSA expenses; more details are in the Health Care FSA section below.
It is important to carefully budget your contributions and expenses. The university Health Care FSA has a 2.5-month Grace Period (through March 15 of the following year), which allows you extra time to incur expenses to use your flexible spending health care balance after the close of the plan year. The FSA Dependent Care account does not have the extended period of coverage, so those expenses must be incurred during the plan year. If you do not use all your contributions within the plan year (including the Grace Period for FSA health care), you forfeit any money left in your account.
If you have a qualifying family status change event (such as marriage or a new baby) outside Annual Enrollment, you have the opportunity to enroll in a Health Care and/or Dependent Care FSA, or adjust your contributions, consistent with the family status change. Using an FSA to pay for expenses can reduce your out-of-pocket costs significantly. Your personal savings will vary according to your net tax rate.
The Health Care FSA is an account that allows you to set aside pre-tax dollars to pay for out-of-pocket medical expenses for you, your spouse, and any tax dependents. You may enroll in a Health Care FSA if you are a benefits-eligible faculty or staff member enrolled in the Custom Network Plan or the PPO Plan, or if you are a faculty or staff member who is benefit-eligible but not enrolled in any university medical plan. Retirees are not eligible for an FSA, nor are faculty or staff members enrolled in the Healthy Savings Plan (since they have access to a Health Savings Account).
You can set aside up to $2,550 per year in the account. Your full annual election is available to you on your first day of coverage, which means that when you incur eligible expenses, you can submit reimbursement requests immediately even though the money you set aside is deducted from each paycheck, little by little over the course of the year.
Use your FSA to reimburse health care expenses for you, your spouse, or any tax dependent, even if your dependents are not enrolled in your UM medical, dental, or vision plans. You may elect to use an ASIFlex debit card when making purchases with your Health Care FSA, providing flexibility and convenience in how and where you shop for health care-related goods and services by giving you the ability to use your FSA dollars.
The Dependent Care FSA allows you to use pre-tax dollars to pay for out-of-pocket childcare and/or elder care dependent expenses. You can set aside up to $5,000 per year ($2,500 if married and filing separately on your federal income taxes). Please note that the $5,000 is a household maximum. A difference from the Health Care FSA is that any benefit-eligible faculty or staff member—regardless of the medical plan they are enrolled in—may also use a Dependent Care FSA for child/day care expenses. You must enroll in a Dependent Care FSA separately from a Health Care FSA.
Your contributions to the Dependent Care FSA are deducted before federal and state income taxes and FICA are assessed, and reimbursements are completely tax free. Eligible expenses include day care, babysitting, general-purpose day camps, and pre-K expenses. Please note that you will be required to include your provider’s tax identification number or social security number with your reimbursement request.
Ineligible expenses include overnight camps; care provided by your tax dependent, your spouse, or your child who is under the age of 19; and care provided while you are not at work.
For more information regarding the Dependent Care FSA, review the resources in the forms and guides section of this webpage.
If you previously enrolled in an FSA and are now enrolling in an HSA - If you were enrolled in an FSA in one calendar year (let's call it Year One) and will be enrolled in an HSA in the next calendar year (Year Two), you will need to take special action. In order to make or receive HSA contributions at the beginning of Year Two, your previously held Health Care FSA account must have a zero balance before the end of Year One. That means you'll need to submit claims for eligible healthcare expenses by December 24 for those claims to be processed before the end of Year One.
If you previously enrolled in an HSA and are now enrolling in an FSA - The minute money is deposited in your HSA, it is yours to keep forever. Even if you are no longer eligible to contribute to your HSA, you can still use the funds that are in it. Individuals who are enrolled in a Health Care FSA may not contribute to an HSA, but they can use funds from an HSA that they had in years prior to enrolling in an FSA.
* In the event of a difference between this webpage and the plan document or summary plan description, the plan document and plan description prevail.
Reviewed April 20, 2017.