Flexible Spending Accounts are for everyone
This tax advantaged account pairs well with any health insurance plan and offers thousands of eligible expenses making it easy for participants to become smart spenders.
A Healthcare Flexible Spending Account (HC-FSA) is an employer-sponsored account letting employees set aside pre-tax dollars to pay for eligible healthcare expenses. It’s a smart way to save and pay for eligible healthcare expenses, because employees don’t have to pay federal or FICA taxes on the money they put into their account, and many state taxes are also exempt. With an HC-FSA, pre-tax funds are deducted from each paycheck and automatically deposited into the employee’s account.
Offering an FSA has a major impact on how employees manage their healthcare spending and sends a strong message that their employer is committed to their health and wellness.
What’s covered
FSAs can be used to pay for thousands of eligible items and services, including deductibles, copays and prescription medications. Below are some of the most popular items considered FSA-eligible — a full listing of products and services is available at irs.gov.
HSA vs FSA
Both FSAs and HSAs offer participants the opportunity to contribute funds, plan for the future, and spend on qualified healthcare expenses. However, there are some key differences. Let’s take a closer look at a Flexible Spending Account versus a Health Savings Account.
| HSA | FSA |
|---|---|
| Paired exclusively with a high deductible health plan (HDHP) | Can be paired with any health insurance plan |
| Account funds can be contributed by both the employer and the employee (up to the limit set by the IRS) | Funds are contributed by the employee only |
| Owned by the employee – funds roll over year to year and belong to the participant no matter what | Owned by the employer – funds are subject to the “use it or lose it” rule and are forfeited upon termination of employment |
| Funds are available for use as they are contributed | Total annual contribution is available for use on day 1 of the plan year |
| Funds can be invested (an ROI for the participant) | No opportunity for investments |
| Tax advantages – contributions, distributions for eligible expenses, and returns on investments are all tax free | Tax advantages – contributions and distributions for eligible expenses are tax free |
| HSA | FSA | |
|---|---|---|
| Who is eligible? | Employees enrolled in a HSA-compatible plan (typically a HDHP) | Employees enrolled in a medical plan |
| Who contributes money to the account? | The employee; employers have the option to contribute funds as well. | The employee |
| Do funds roll over? | Yes, funds roll over annually and are yours to keep no matter what. | Yes but only up to the limit allowed by the IRS. |
| What can I spend my funds on? | The IRS maintains the complete list of eligible expenses. | |
| Are there opportunities to invest or grow my account? | Yes, HSA funds can be invested and grow over time. | No |
Limited Purpose FSA
An account option for employees enrolled in an HSA
If you contribute to a Health Savings Account, you are ineligible to contribute to a conventional Healthcare FSA. Alternatively, employers can offer a Limited Purpose FSA. The Limited Purpose FSA is most commonly paired with a Health Savings Account (HSA). Since eligible expenses under a Limited Purpose FSA are restricted to dental and vision, it’s a great option for employees with children needing glasses or orthodontia.
The Limited Purpose FSA features the same tax advantages and annual maximum contribution limits as a Healthcare FSA. What sets a Limited Purpose FSA apart is the condensed list of eligible expenses and the required enrollment in an HSA.
IRS Guidelines, Contribution Limits, and Eligible Expenses
The IRS sets limits each year for maximum contributions to each type of account-based benefit. Use this information as a reference, but please visit IRS.gov for the latest updates as this information is subject to change.
Additionally, the IRS maintains the complete list of eligible expenses for each account type. Due to frequent updates to the regulations governing these accounts and arrangements, this list does not guarantee reimbursement and is to be utilized as a guide for the submission of claims.
Document services and testing
As a service to employers, HSA Bank offers the facilitation of ERISA Plan Documentation as well as Non-Discrimination Testing for Flexible Spending Accounts.
ERISA Plan Documentation
HSA Bank can facilitate the generation and maintenance of the written Plan Document and Summary Plan Description for FSA plans. The Employee Retirement Income Security Act (ERISA) requires employers who offer welfare benefit plans to create these documents and provide them to employees. These documents are a crucial part of any benefit program offered by employer groups as they communicate the plan benefits and how each plan operates. All documents are stored electronically for later reference and include a date and time stamp of the original or any subsequent revisions.
Non-Discrimination Testing
HSA Bank can facilitate the Non-Discrimination Testing (NDT) for FSA plans. The IRS requires employers to perform NDT each year. The reason for NDT is to prevent key and highly compensated employees from receiving a disproportionate amount of employer provided tax-free benefits as compared to the rank-and-file employees. NDT is an important component of plan compliance. Failure of an employer to satisfy the nondiscrimination testing requirements or take the necessary corrective measures can result in the inclusion of the discriminatory benefits in the income of highly compensated employees.
Additional Resources
Employer Resource Center
Access videos, communications and other tools to easily educate your employees and manage your HSA program.
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Health & Wealth Index
The HSA Bank Health and Wealth IndexSM provides analytics and data so we can better understand the behaviors, habits and education level of healthcare consumers.
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