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Flexible Spending Account FAQs

FSA Basics

What is an FSA?
A Flexible Spending Account (FSA) is a tax-advantaged savings account many employers in the United States offer. It allows you to set aside a portion of your pre-tax income to pay for qualified medical, dental, and dependent care expenses. It covers not just your medical expenses but also the expenses of your spouse, qualifying children, and qualifying relatives. Depending on your tax bracket, you may save up to 30 percent or more in taxes (“Health Care FSA.” FSAFEDS, www.fsafeds.com/explore/hcfsa. Sept. 2023).
How does an FSA work?
Enroll: During your employer’s open enrollment period, you can elect to participate in an FSA and choose the type of FSA you want (e.g., Health FSA, Dependent Care FSA, Limited Purpose FSA). You decide how much money you want to contribute to your FSA for the upcoming plan year, subject to any contribution limits set by your employer.

Pre-Tax Contributions:  Elect an annual amount or contribution for your FSA. Look at your medical expenses from the previous plan year and estimate the medical, vision, dental, and/or dependent care expenses you may incur during the plan year. The money you choose to contribute to your FSA is deducted from your gross income before taxes are withheld. This reduces your taxable income, resulting in lower income tax and FICA (Social Security and Medicare) withholdings.

Funding: Your FSA contributions are deposited into your FSA account and are available for use on the first day of your plan year. In some cases, your employer may also contribute to employee FSAs.

Expenses incurred: Throughout the plan year, you can use the funds in your FSA to pay for eligible expenses. These expenses depend on the type of FSA you have. For example:

  • Health FSA: You can use the funds to cover qualified medical and dental expenses, such as co-pays, deductibles, prescription medications, and more.
  • Dependent Care FSA: You can use the funds for eligible dependent care expenses, such as child care or adult daycare costs.
  • Limited-Purpose FSA: This type covers specific expenses like dental and vision care.

Accessing funds: When you have eligible health care expenses, pay for them with your Zenda card or out of pocket and request reimbursement through the Zenda mobile app or website. Remember—always to keep your receipts.

What expenses can be paid for using a health FSA?
For a full list of qualified medical expenses, you can view our Qualifying Expenses FAQ, or they can also be found in IRS Publication 502.

In addition to co-pays, deductibles, and prescription medications. You can also use your FSA to pay for thousands of over-the-counter medicines, medical supplies, menstrual care products, and even some sunscreens.

What expenses can be paid for using a Limited-Purpose FSA (LFSA)?
A Limited-Purpose FSA is designed to cover specific medical expenses, typically dental and vision care while working in conjunction with a Health Savings Account (HSA). Common eligible expenses for a Limited-Purpose FSA include:

  • Dental Care:
    • Dental exams and cleanings
    • Fillings and sealants
    • X-rays
    • Braces and orthodontia
    • Dental surgery
  • Vision Care:
    • Eye exams
    • Prescription eyeglasses
    • Prescription contact lenses
    • Contact lens solution and supplies
    • Vision correction surgery (e.g., LASIK)
What expenses can be paid for using a Dependent Care FSA (DCFSA)?
A DCFSA covers expenses for eligible dependents (see below) that are incurred so you and your spouse can work. To qualify, you and your spouse must be employed, or your spouse must be a full-time student.

Eligible dependents include:

  • Children under the age of 13 who are claimed as a dependent for tax purposes
  • Care of a disabled spouse or disabled dependent of any age

Eligible expenses can include:

  • Child Care Services:
    • Daycare center expenses
    • In-home caregiver fees
    • Preschool or nursery school costs
    • Before and after school care
  • Adult Care Services:
    • Adult daycare expenses
    • In-home caregiver fees for a dependent adult
    • Expenses related to caring for an elderly parent or disabled adult
  • Summer Day Camp Programs:
    • Day camp fees during summer or school breaks (expenses related to overnight camps are usually not covered)

Ineligible expenses:

  • Costs already claimed as a dependent care tax credit on your income tax return
  • Nursing homes, respite care, or other residential care centers
  • Services provided by one of your dependents
  • Nighttime babysitting expenses that are not work-related
  • Expenses while absent from work for more than two weeks at a time
  • Costs paid to your own dependents, under age 19, who are caring for your dependents
  • Expenses paid for schooling for kindergarten or higher
  • Overnight Camps
How much can I contribute to an FSA?
The annual contribution limit for an FSA is set by your employer and can vary. However annual maximum contribution limits are set by the IRS. For 2024, the annual maximum contribution limits for each type of FSA are:

Health FSA: $3,200

Limited-Purpose FSA: $3,200

Dependent Care FSA: If married and filing a joint return, the limit is $5,000. If you are a single parent or are married and filing separately, the limit is $2,500 per parent.

The limit is per person; each spouse in the household may contribute up to the limit. Your employer may elect a lower contribution limit. So, please see your plan documents or check with your Human Resources office for the specifics of your FSA Health Care Plan. The limit is generally adjusted annually to account for inflation increases.

What is the "use it or lose it" rule?
Per IRS regulations, you forfeit any money for which you did not incur an eligible expense under your FSA account(s) during the plan year. When you contribute to an FSA, you agree to reduce your salary by a specified amount.  Since you never received that money, you can’t be taxed on it.  If you were to receive the unused amount at the end of the plan year, the IRS would consider this ‘deferred compensation.’  Section 125 of the IRS Code prohibits deferred compensation, thus the ‘use-it-or-lose-it’ rule.

However, some plans may allow you to continue submitting claims beyond the end of the plan period for any eligible expenses you incurred before the deadline. Additionally, some plans may allow you to continue spending your FSA dollars through a defined grace period or allow you to carry over a portion of your remaining balance. Be sure to check your specific plan rules in your summary plan description by contacting your HR Department.

What is a run out period?
The run-out period is a specified period of time after the end of the plan year or following your termination from the plan, in which you may continue to submit claims incurred during your period of coverage. This is not a period when you are able to continue to incur new expenses, but rather, it allows you time to gather and submit expenses before forfeitures are applied. For example, if your plan has a 90-day run-out period, you will have 90 days from your date of termination to submit expenses incurred prior to the termination date.

Remember that reimbursement for expenses is based on when an expense is incurred, not when it is.

Confirm with your employer if they are offering a run-out period and the duration of the time frame.

What is a grace period?
A grace period extension can apply to both a healthcare FSA and a Dependent Care FSA. The grace period begins on the first day immediately following the last day of the plan year. You may incur eligible FSA expenses and use the funds remaining in your account to cover those expenses. This provides you the opportunity to maximize your FSA funds and avoid forfeiting money to your employer through the IRS “use-it-or-lose-it rule.”

Confirm with your employer to see if they offer a grace period and if they do confirm the time-frame as it is different for all employers.

Note: If your employer offers a grace period, you will not have the carryover option. Per IRS regulations, you cannot offer a grace period with a carryover.

What is carry over?
Per IRS regulations, you can carry over up to $640 from your previous plan year into the next plan year should the employer offer this plan design. This means up to an additional $640 will be available for you to use in your next plan year in addition to your annual election. If you have money in your account that is over $640, that money will be forfeited to the employer, and the remaining $640 will carry over. The $640 will automatically roll over to your account after your run-out period.

Confirm with your employer if they are offering a carryover option as it will help you determine your annual election.

Note: If your employer offers a grace period, you will not have the carryover option. Per IRS regulations, you cannot offer a grace period with a carryover.

Can I change my FSA contribution amount during the plan year?
Per IRS guidelines, the annual election cannot be changed or altered unless you experience a qualifying event.  A qualifying event is one of the following:

  • A change in material status, such as marriage, divorce, or death of your spouse
  • A change in the number of your dependents, such as a birth or adoption of a child, or a death of a dependent
  • A change in employment status for you, your spouse, or your dependent that affects eligibility
  • An event that causes your dependent to satisfy or cease to satisfy an eligibility requirement (i.e., dependent turning 14 years old or 26 years old)
  • A change in residence for you, your spouse, or dependent
  • A change in cost or coverage

The adjustment to the election must be consistent with the event. For example, an increase in the cost of daycare would not allow you to decrease your election (although if the increase made the cost of care unaffordable, one could justify no longer participating in the plan).

Please refer to your employer’s plan document for further guidance on qualifying status change events applicable to your plan.

What happens to my FSA if I change jobs?
Participation in the FSA ends if you terminate employment. This means only expenses incurred before the date your participation in the plan ends are eligible for reimbursement. Some employers offer a grace period or allow a carryover of funds, but it’s essential to understand your employer’s policies and make arrangements accordingly.
Can I use my FSA funds for my family's medical expenses?
Yes, you can use your FSA funds to cover qualified medical expenses for yourself, your spouse, and your dependents, as long as they are considered eligible dependents for tax purposes.

You can use your FSA to pay for eligible expenses incurred by any of the following individuals:

  • Yourself
  • Spouse
  • Qualifying child: defined as any dependent child up to age 26 or any age if permanently disabled
  • Qualifying relative: defined as someone who resides with you for more than half of the year
  • Qualifying children and relatives must not provide more than half of their own support.

New rules allow a dependent to be eligible for the plan, even when that dependent does not qualify to be claimed as your tax dependent on your tax return. We recommend you check with your tax advisor before you make your election for the plan year.

Dependent Care FAQs

What expenses can be paid for using a Dependent Care FSA (DCFSA)?
A DCFSA covers expenses for eligible dependents (see below) that are incurred so you and your spouse can work. To qualify, you and your spouse must be employed, or your spouse must be a full-time student.

Eligible dependents include:

  • Children under the age of 13 who are claimed as a dependent for tax purposes
  • Care of a disabled spouse or disabled dependent of any age

Eligible expenses can include:

  • Child Care Services:
    • Daycare center expenses
    • In-home caregiver fees
    • Preschool or nursery school costs
    • Before and after-school care
  • Adult Care Services:
    • Adult daycare expenses
    • In-home caregiver fees for a dependent adult
    • Expenses related to caring for an elderly parent or disabled adult
  • Summer Day Camp Programs:
    • Day camp fees during summer or school breaks (expenses related to overnight camps are usually not covered)

Ineligible expenses:

  • Costs already claimed as a dependent care tax credit on your income tax return
  • Nursing homes, respite care, or other residential care centers
  • Services provided by one of your dependents
  • Nighttime babysitting expenses that are not work-related
  • Expenses while absent from work for more than two weeks at a time
  • Costs paid to your own dependents, under age 19, who are caring for your dependents
  • Expenses paid for schooling for kindergarten or higher
  • Overnight camps
Can I use my Zenda card to pay for dependent care expenses?
Currently, you can not use your Zenda card to pay for dependent care expenses. To use your dependent care funds, you must create an expense using the mobile app or website. Once your expense is reviewed and approved, you will be reimbursed from your DCFSA to the method you select. To learn more about submitting an expense for reimbursement, see our expense reimbursement guide.
How can I get reimbursed from my DCFSA?
You must create an expense and submit a claim for reimbursement. The easiest and fastest way to do this is using the Website or Mobile Apps. You will need to provide supporting documentation that includes dates of service, the service provider, and a detailed description of the service provided. Once submitted, your claim will be reviewed within 1-2 business days. If the documentation is sufficient, your claim will be approved and your reimbursement processed. The reimbursement can be directly deposited into your linked bank account or by check. Remember that you can not get reimbursed for dependent care expenses until the services for the period have been fully provided, typically at the end of the month.

To learn more about submitting an expense for reimbursement, see our expense reimbursement guide.

What if my monthly costs exceed my payroll deductions?
If your costs per month exceed your monthly payroll deduction, you can still create a dependent care expense once the service has been incurred. We will issue your reimbursement as your payroll deductions post to your DCFSA.

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