Flexible Spending Accounts

Flexible Spending Accounts (FSAs) are a tax-free vehicle where the employee can have a designated amount or percentage taken out of his / her check before taxes. As mandated by the government, there are special rules and limits to these deductions. The two types of FSAs are childcare and healthcare. The annual amount chosen by the employee is divided into equal payments over the course of one year. These moneys can be used in paying medical expenses and deductibles that the employee usually pays out of pocket that are not covered by their medical insurance. Childcare FSAs are the same type of account, only to be used for childcare that is necessary so that the parent can work.

Now there are several ways for the employee to access these funds or to apply for reimbursement of allowed expenses. Traditionally, the employee keeps his / her receipts and submits them with a reimbursement form either directly to the company providing the FSA or to his / her employer who processes the paperwork. After everything is determined to qualify under the government’s allowed list of covered items or services, the employee receives reimbursement tax-free. This provides employees an incentive to contribute while saving a little bit on their taxes. There are also easier, more user-friendly ways to access this money, employees can apply for reimbursement by providing their receipts and information online and there are debit cards that can only be used for allowed medical / childcare expenses. Employees are encouraged to hold onto their receipts in case there is a dispute with a charge that is deemed excluded from the list of acceptable expenses.

Employees who leave an employer but have used their complete account for reimbursement no longer contribute for the remainder of the year. This is the risk the employer takes for providing this benefit. However, an employee has to provide his / her receipts and if they do not qualify for reimbursement with money left over at the end of the year, the money becomes the employer’s. There are many intricate rules to this type of benefit because it is a tax-free vehicle.