Health and Dependent Care FSAs

Participants can take advantage of the tax benefits offered by Health or Dependent Care FSAs to pay for eligible out-of-pocket expenses.

Tax advantages of FSAs

Authorized by the IRS, Flexible Spending Accounts (FSAs) are a great way to let your employees gain significant tax advantages for out of pocket medical and dependent care expenses.

FSAs allow participants to set aside money before taxes are withheld. As health care expenses or dependent care expenses are incurred throughout the year, participants submit a claim for those expenses and are reimbursed with tax-free dollars from the member’s account(s).

There are two FSA options, and employees can participate in either or both plans:

The Health FSA reimburses out-of-pocket health care expenses for medical, dental, vision or hearing expenses.
The Dependent Care FSA reimburses dependent care expenses required to allow participants to work.

How FSAs work

There is an annual open enrollment period when your employees can elect to participate in the Health and/or the Dependent Care FSA. Once enrolled:

Participants estimate the amount to be spent on out-of-pocket health care expenses and/or dependent care expenses during the year and decide how much to set aside.
The set-aside amounts are deducted directly from the employee’s paycheck in equal amounts each pay period on a pre-tax basis.
Participants submit a claim for the expenses and are then reimbursed from their account(s). Claims can be filed as often as the participant wishes — weekly, monthly, etc.
Any money left over in the FSA account at the end of the year is forfeited. It is a “use it or lose it” account. Therefore, it is important that your employees carefully estimate their contributions. There is a runout period (typically three months) following the end of the plan year for employees to submit expenses incurred in the previous year.