A Flexible Spending Account (FSA) is an employer sponsored benefit that allows both the employees and the employer to save money on insurance premiums and out‐of‐pocket medical and dependent care expenses. The plan operates on a plan year basis established by the employer.
Employees can set aside money from their paycheck for the reimbursement of qualified health care expenses.
FSA plans are governed by section 125 of the IRS tax code and department of treasury regulations. Within the framework of the regulations, employers have some flexibility in designing their plan so long as the terms of the plan are applied uniformly to the employees. Here are some of the various aspects of a plan’s design that are determined by the employer.
The health care FSA limit
The claims run‐out period
Adding the 2 ½ month grace period
Offering a debit card
The FSA plan year
Pre‐tax insurance premiums
FSA plans are regulated by the IRS and the Department of Treasury and are considered a group health plan. As a result, they are subject to specific rules to ensure that the plan meets regulatory standards. There are three (3) main areas of compliance for an FSA plan — the form 5500 filing, nondiscrimination testing and the plan document and summary plan description (SPD) requirement.
The Form 5500 filing is a requirement for plans with over 100 HCFSA participants at the start of the plan year
Nondiscrimination testing (NDT) is required for all plans to ensure that the plan does not favor highly compensated employees or key employees. Although the testing is not filed with any agency, the burden is on the employer to ensure that the plan will pass the testing requirements.
A written plan documents is required. This document governs the terms and conditions of the plan. The plan document should be updated or amended each year to account for changes in plan design. The SPD is a “layman’s” version of the plan document and is provided to the plan participants during the enrollment period.
Your dependent care flexible spending account is a reimbursement account offered by your employer as part of your benefits package. Enrolling in a dependent care FSA plan saves you money. It allows you to use pre-tax dollars to pay for eligible dependent care FSA expenses, such as day care, preschool, or after-school care for a qualified individual.
Only eligible expenses can be reimbursed under the FSA. These expenses are defined by the Internal Revenue Code and your employer’s plan. Dependent care expenses must be incurred during the coverage period so you (and your spouse, if married) can work or look for work. Full-time students who attend school for at least five months during the tax year may also incur dependent care expenses. “Work” may include actively looking for work, but it does not include unpaid volunteer work or volunteer work for a nominal salary. A dependent care FSA covers qualified dependent care expenses incurred for the care of one or more qualifying individuals.
Eligible Expenses include:
Before-school and after-school care
Expenses for preschool/nursery school
Extended day programs
Au pair services (amounts paid for the actual care of the dependent)
Baby sitter (in or out of the home)
Nanny services (amounts paid for the actual care of the dependent)
Summer day camp for your qualifying child under the age of 13
