Flexible Spending Accounts FAQs for Employers

I’m glad you asked! A healthcare flexible spending account (FSA) is an employer-sponsored benefit that allows your employees to set aside pre-tax dollars into an account to be used for eligible medical expenses. And as the name suggests, it’s incredibly flexible and customizable for each employee!

Do your employees like saving money? Contributions to the FSA are deducted from your employees’ paychecks on a pre-tax basis, significantly reducing their taxable income. This means your employees can increase their spendable income by an average of 30% of their annual contribution with tax savings!

Each year, employees will choose an annual deduction amount within that year’s contribution limit. That election will be divided by the number of pay periods in their plan year. Then, that amount will be deducted from the employee’s paycheck before taxes are assessed.

Contribution limits change from year to year based on IRS guidelines. Please visit www.claritybenefitsolutions.com to see this year’s most updated contribution details.

You guessed it… it’s flexible! An FSA covers eligible expenses for your employees and their dependents, even if they are not covered under the employee’s primary health plan!

Did I mention flexibility? FSA funds can be used for health plan co-pays, deductibles, co-insurance, eyeglasses, dental care, medications and even certain medical supplies. The IRS provides specific guidance regarding eligible expenses. (See IRS Publication 502). You can also explore the FSA Store for a full list of eligible items.

Expenses are incurred at the time the medical care was provided, not when your employees are invoiced or pay the bill. So remind them that the date they need when submitting a claim is likely the day they had their appointment.

There are a few easy and convenient ways! If your employees have a Clarity Benefit Card, they can simply swipe it at the register when they receive the service or product. Otherwise, your employees can file a claim, including the receipt, documenting the type, amount and date. Once approved, their reimbursement check will be mailed or deposited directly into their bank account!

Here’s where it might get tricky. Any unused funds at the end of the plan year are typically forfeited, which is known as the “use-it-or-lose-it rule”. To help employees avoid losing any of their funds, be sure to recommend that employees only allocate dollars for medical expenses they are sure they can predict throughout the year.

Right away! With a healthcare FSA, your employees' entire annual election amount is available on the first day of the plan year, even though they have not yet contributed that amount.

Only under specific circumstances. Elections can only be altered if employees experience a qualifying change in status as defined by IRS regulations, such as marriage, divorce, birth, or death in their immediate family.

Participation in their FSA is also terminated. This means that only expenses that were incurred prior to their termination date are eligible for reimbursement.

It’s fairly flexible! Your employees can submit claims for reimbursement at any time during the same plan year that they incur the expense. They may also have a grace period at the end of the plan year. Check the summary plan document you provided them for additional information.

Yep! However, they cannot deduct the same expenses for which they have already been reimbursed from their FSA.

Yep! Most OTC medications are FSA-eligible. You can also explore the FSA Store for a full list of eligible items.

Some FSA-eligible items may require a Letter of Medical Necessity (LMN) from a doctor detailing that the product is required for a certain individual’s health. The IRS mandates that eligible expenses be primarily for the diagnosis, treatment, or prevention of disease; this also includes treatment of conditions affecting any functional part of the body. For example, vitamins are not typically covered because they are used for general wellness, but a doctor may prescribe a vitamin to treat a medical condition. The vitamin would then become eligible in this instance.