Employee Benefits - Fringe Benefits
C.E.S.P. 8-21: Flexible Spending Account
Date Revised: 1-7-2020
Summary: Establishes policies and procedures for participation in the Flexible Spending Account
The Flexible Spending Account (FSA), established under Section 125 of the Internal Revenue Code, permits employees to pay for certain expenses before taxes. When you pay for these expenses with pre-tax salary, you pay no social security, state, or federal tax on your contributions. The eligible expenses that may be paid with pre-tax salary are:
- Out-of-pocket medical/dental/vision expenses (Health Care Reimbursement Account)
- Certain dependent care expenses (Dependent Care Reimbursement Account)
You can set aside as little as $120 or as much as $2,700 for the plan year. Whatever you elect is deducted from your paycheck evenly throughout the year on a pre-tax basis. Then you file claims to reimburse yourself from your account (funded with your money) when you have eligible healthcare expenses. Or you can use your “benny card” to pay for your expense directly from your FSA. You can also use it to pay your copays, deductible and coinsurance under your medical and dental plans or to pay for contact lenses and glasses (if not paid under Vision) and orthodontia.
Dependent Care FSA
You may set aside as much $5,000 for the plan year. Just like a Healthcare FSA, whatever you elect is deducted from your paycheck over the year, on a pre-tax basis. But this account is used to reimburse yourself for childcare/daycare expenses that are needed because both you and your spouse work. Children must be under the age of 13. Note that if you do a Dependent Care FSA, you are not eligible to take the childcare credit for the same expenses when you file your tax returns.
Is there a risk?
As with most tax-favored benefits, there are some risks. Once you elect to contribute to an FSA, you’re locked into it for the year. You can’t change or cancel your FSA mid-year unless you’re within a month of a qualifying event. The list of qualifying events for a Healthcare FSA is particularly short – marriage, divorce, birth and death.
- Expenses must be incurred from January 1 through December 31 or your termination date, whichever is earlier. No Grace Period.
- From $50 up to $500 of unused FSA as of December 31 will transfer to the next plan year. Unused amounts over $500 will be forfeited after December 31.
- You will have until March 31 of the next calendar year to file for reimbursement for expenses incurred through December 31 of the current plan year.
- Enroll using annual election, not monthly deduction amount.
- Money cannot be transferred between accounts (Health Care Reimbursement & Dependent Care Reimbursement). Make sure you enroll in the correct account.
- Annual re-enrollment is required each plan year
For determining the amount to be set aside in the reimbursement accounts, you should be conservative. The Internal Revenue Service requires that any unused funds remaining in the account at the end of the year are forfeited. It is a "use it" or "lose it" situation. If you are reimbursed for these expenses through the Flexible Benefit plan, you cannot claim them as a deduction on your income tax.
- UA System Website – (Please select Cooperative Extension Service for content)
- Flexible Spending Summary Plan Description
- UMR FSA Eligible and Ineligible Expenses
- UMR debit “benny” Card FAQs
- Healthcare Flexible Spending Account Calculator (to help you estimate your annual election and tax savings)
- EBEN-112: University of Arkansas FSA Enrollment Form (PDF).
- UMR Health and Dependent Care Reimbursement Account Request