Flexible Spending Accounts, or FSAs, are popular health savings options for employees. Similar to HSAs, flexible spending accounts allow employees to use tax-free contributions towards certain health care expenses.
However, there are a few notable differences between HSAs and FSAs. Let’s take a look at how much employees can contribute, what they can use the FSA funds for, and what is covered by an FSA.
What is a Flexible Spending Account?
A flexible spending account is a savings account used to cover certain healthcare costs. The contributions are from pre-tax dollars. Unlike HSA contributions, which roll over into the next year, funds in an FSA that are not used by the end of the year are forfeited, except for $550 employers can allow employees to carry over into the next year.
How much can I contribute to an FSA?
In 2021, the IRS stipulates an employee can contribute up to $2,750. Employees must set their contribution during open enrollment, and should be noted once the contribution is set, it’s set until the next open enrollment. If an employee decides to max out their FSA for the year, which a biweekly pay frequency would equate to $105.77 per paycheck, they can use the entire $2,750 for that year as soon as the first contribution is in the account.
Employers can contribute to employee FSAs, and if your company offers HSAs and FSAs, the employer likely makes a contribution. But like an employees’ contribution, the amount an employer can pay into individual FSAs must be determined at the start of the fiscal year.
What can I use my FSA account for?
Flexible spending accounts can be used for a number of healthcare-related out-of-pocket expenses. They can be used towards copays and meeting a deductible. Other acceptable expenses include:
Eye exams, contact lenses and glasses
Wheelchairs and crutches
FSAs cannot be used for over-the-counter drugs unless a doctor has given their permission. What’s more, flexible spending accounts can be used to help employees’ family members with FSA Dependent Care.
Can I contribute to an HSA and an FSA?
The short answer is yes, you can contribute to an HSA and an FSA in the same year. There are, however, a few restrictions. Contributions cannot overlap, which means contributions must come from different places of employment.
Flexible spending accounts can be a great option for employees who know they need access to funds for health and medical-related costs during the year. Everyone has different circumstances, and what works best for a single, young adult likely isn’t the best option for a professional with a family. But by having an understanding of FSAs and HSAs, you can make an informed decision that best fits your needs.
Interested in learning how Dominion Systems can help your company?