Flexible Spending Account

Flexible Spending Account
The Flexible Spending Account (FSA) maybe offered to you as part of your employer's benefit package. Through an FSA, you can set aside pre-tax dollars for eligible medical, dental, vision and dependent care expenses. Your contribution is deducted from your paycheck in equal amounts each pay period. Depending on your expenses, an FSA could save you 25% or more on eligible expenses. However, it is important to plan ahead and anticipate medical expenses before enrolling in a FSA to avoid having to forfeit any unused funds.
There are four (4) types of accounts that could be offered under a Flexible Spending Account program, each offering unique features and opportunities to save money:



Frequently offered along side traditional co-pay health plans, the Healthcare FSA helps employees pay for expenses not otherwise covered by their insurance. This account provides you with upfront access to your full annual election on the first day of the plan year to help you pay for eligible medical, dental and vision expenses incurred by you, your spouse and dependents.



Similar in many ways to the Healthcare FSA, the Limited Purpose FSA only reimburses eligible dental and vision expenses. These accounts are often offered as part of a benefits program that also includes the Health Savings Account (HSA). This is because you cannot have both the HSA and Healthcare FSA since both reimburse medical expenses. A person may choose to enroll in both the HSA and Limited Purpose FSA to maximize their tax savings on eligible dental and vision expenses.



Helps many of today's families pay for costs associated with the care of their children. A Dependent Care FSA offers a way to better manage these expenses and gain real tax savings. This account allows you to direct part of your pay, on a pre-tax basis, throughout the year to reimburse yourself for certain dependent care expenses incurred so that you can work. These expenses commonly include before and after school program, child and elder daycare, summer day camp, and preschool.



Provides those planning on adopting a child a great way to help manage the out-of-pocket expenses incurred during a legal adoption process while also gaining a tax savings. With this account you are able to set aside part of your pay on a pre-tax basis to reimburse yourself for adoption related expenses such as adoption fees, court costs, attorney fees and related travel costs.



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An individual earns $45,000 annually and elects to contribute $2,700 annually to a Healthcare FSA  to cover out-of-pocket medical costs.


  Without FSA With FSA
Gross Earnings $45,000 $45,000
FSA Contributions -$0.00 -$2,700
Adjusted Gross Pay = $45,000  = $42,300
FICA, Fed/State Taxes -$6,750 -$6,353
Out-of-Pocket Medical Expenses -$2,700 $2,700 (covered by FSA)
Total Take Home $35,600 $35,947


In general, an individual must simply be employed by an employer who offers one and be otherwise eligible for benefits. 

Note: Even if the eligible employee chooses not to enroll in their company’s health insurance (for example, if an employee chooses to be on their spouse’s insurance plan instead) they can still sign up for the FSA.



Whether owners of the company are able to participate in the FSA depends solely on their tax filing status. Below is a summary of those rules.

1.  C-Corporation Owners

May participate in an FSA, and receive reimbursements tax free. C-Corp owners may use their FSA to reimburse their medical expenses, as well as those of their spouse and dependent.

2.  Sole Proprietors

Cannot receive reimbursements tax-free. However, if the sole proprietor is married, and their spouse is a W-2 employee, then the spouse can receive the tax-free benefit. In this case, the FSA is set up in the spouse's name and the sole-proprietor is listed as a dependent.

3.  Partners 

Cannot receive reimbursements tax-free. However, if the partner is married, and their spouse is a W-2 employee (but not a partner), then the spouse can receive the benefit tax-free. In this case, the FSA is set up in the spouse's name and the partner is listed as a dependent.

4.  S-Corporation Owners

That own >2% of the company's shares and their spouse, parents, children, and grandchildren, cannot receive reimbursements tax-free (reimbursements are subject to federal income tax withholding). 

5.  LLC's

Owner participation varies based on the way the LLC files taxes (as a Partnership, S-Corp, or C-Corp).




FSA Plan Type 2020
Health Care $2,750
Limited Purpose $2,750
Dependent Care

  - If you are married, filing a joint return or you are head of a house

If you are single or married, but filing separate

Adoption Assistance

  - Phase-out income thresholds: Begin at $211,160 and end at $251,160





All “eligible employees” who received compensation during the previous year are included in nondiscrimination testing. Generally only union employees, non-resident aliens, leased employees and independent contractors can be excluded from nondiscrimination testing because they are not considered “eligible employees.”



Each year, the IRS requires companies with pre-tax reimbursement accounts to complete nondiscrimination testing. Nondiscrimination testing ensures that the business owners and Highly Compensated Employee(s) (HCE) do not receive a disproportionate benefit from a pre-tax plan compared to other employees.

When you participate in a payroll deduction program through your employer, deductions can be taken from your payroll before calculating your taxable federal income, FICA (Social Security and Medicare) tax and for most states, taxable state income. By taking deductions pre-tax, you reduce the dollars on which you are taxed and, as a result, reduce your total tax bill.

Both HSAs and FSAs allow you to pay for qualified medical expenses with pre-tax dollars. One key difference, however, is that HSA balances can roll over from year to year, while FSA money left unspent at the end of the year or after a designated grace period is forfeited. You may choose to use a Limited Purpose FSA to pay for eligible heath care expenses and save your HSA dollars for future health care needs. You may use Limited Purpose FSA dollars to reimburse yourself for expenses not covered by your high-deductible health plan, such as:

1. Vision expenses, including: Glasses, frames, contacts, prescription sunglasses, goggles, vision co-payments, optometrists or ophthalmologist fees, and corrective eye surgery

2. Dental expenses, including: Dental care, deductibles and co-payments, braces, x-rays, fillings, and dentures

Yes, you may be reimbursed for expenses incurred for you, your spouse and any IRS dependents, regardless of where you are insured. For example, you might have coverage through your spouse’s employer’s plan (rather than your employer's) and you may still submit your family out-of-pocket expenses to be reimbursed under the Health FSA.


On May 12, the Internal Revenue Service released Notice 2020-29 providing guidance to address:

In response to the March 13, 2020, National Emergency declaration, multiple agencies issued temporary guidance impacting benefit plan time frames.

The recently signed Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) gives healthcare consumers more savings opportunities for HSA, FSA and HRA benefit accounts. 

Forms and Guides

Flexible Spending Account claim reimbursement form for Healthcare, Limited Purpose, and Dependent claims.


Flexible Spending Account claim reimbursement form (Spanish) for Healthcare, Limited Purpose, and Dependent claims.

An example of the information needed within a Letter of Medical Necessity.

Step by step instructions for setting up direct deposit online for claim reimbursement.

eClaims Manager provides access to an employee’s claims data or explanation of benefits (EOBs), allowing increased auto-substantiation of debit card claims and easier electronic manual claim submission.

Eligible Expenses

To see a complete Eligible Expenses Chart please go to the following link.

See All Eligible Expenses

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