Frequently Asked Questions • Section 125 - Flexible Spending Accounts
What is a flexible spending account?
Flexible Spending Accounts (FSAs) allow you to use tax-free payroll dollars to reimburse yourself for non-reimbursed health care and dependent care expenses. A typical plan includes three options; Pre-tax Premium Conversion (POP), Health Care Spending (or Reimbursement) Account, and Dependent Care Spending (or Reimbursement) Account. Participation in these plans is usually voluntary.
Participation in a Pre-tax Premium Plan allows your employer to deduct, via payroll reduction and on a pre-tax basis, any amount that you are paying toward the premium costs associated with your employee benefits.
When you choose to participate in a Health Care Spending Account, you use tax-free dollars to pay for a wide variety of expenses not covered by your insurance plans. Eligible expenses include non-reimbursed medical, dental, vision, and chiropractic expenses among a long list of others. Please refer to your plan documents for additional information regarding services eligible for reimbursement.
Dependent Care Reimbursement Accounts allow participants to use tax-free dollars to pay for dependent care expenses. These expenses include day-care for children through Kindergarten, before- and after-school care for school age children under age thirteen (13), daycare for a disabled spouse, and elder dependent daycare. Dependents, for purposes of this type of plan, are those dependents you can claim as IRS dependents for your personal taxes.
Why should I participate in a FSA plan?
To save money! Participating in any one or a combination of the three FSA options allows you to save tax dollars. Since your FSA contributions are made on a pre-tax basis, you will save these taxes on every dollar you elect to contribute toward an FSA:
Federal Income Tax
State Income Tax
Social Security Tax (FICA)
The total you save is dependent on the income tax bracket you are in. Typically, savings are between 15% and 40% on every dollar you contribute!
Since I don’t pay Social Security Tax on my FSA contributions, will
participating reduce my Social Security retirement benefits?
Yes, but by a very slight amount. Since your taxable income will be reduced, your FICA contribution for Social Security will be affected. Typically, the affect is not great in the scope of a lifetime of covered earnings. If you are concerned about the impact of participation on your retirement income, please contact your personal tax consultant or local Social Security office.
What are examples of eligible health care expenses?
Copayments for medical, dental and vision care
Deductibles for medical, dental and vision care
Coinsurance for medical, dental and vision care
Out-of-pocket expense for prescription drugs
Prescription eyeglasses and/or contact lenses
Solution for the care and maintenance of contact lenses
Orthodontia costs
Orthopedic and Physical Therapy costs
Chiropractic Care
Acupuncture
Hearing Aids and their batteries
Treatment for substance addiction
Speech Therapy
This is a partial list of eligible expenses. Please consult the documents specific to your plan for additional information.