By Kylie Artz, Trüpp.
Flexible Spending Accounts (FSAs) benefit both the employee and the employer!
FSA benefits allow employees to set aside tax-free dollars for use throughout the year on qualified expenses, reducing out-of-pocket costs. The cost to you as an employer is relatively minimal and often offset by the tax savings an employer receives since the employee payroll deductions are taken pre-tax. This means that an employer is not paying the 7.65% tax portion of social security and Medicare.
FSA plans are administered by a benefits carrier, who charges the employer a small per participant fee monthly of around $5. Most carriers offer a debit card option for Health Care FSA plans so employees can conveniently use their available funds. Most carriers also have a website that allows an employee to review the balance of all FSA accounts they are enrolled in, see pending transactions that might require action, and easily file a claim and submit documentation.
There are 3 different types of FSA benefits that can be offered to employees:
Health Care FSA:
- Funds can be used for co-pays, deductible expenses, dental and vision expenses, prescription drugs, and some over-the-counter health care items for the employee and their dependents.
- The employee elects an annual amount, which is available to use at the start of the plan year and is taken as pre-tax payroll deductions throughout the plan year. The IRS defined annual limits for Health Care FSA in 2019 as $2,700.
- The employee (or dependents) do not need to be enrolled in the company offered medical, dental, or vision plans to utilize the FSA benefit.
Dependent Care FSA:
- Funds can be used for eligible dependent care services, such as preschool or daycare, summer day camp, before or after school programs, and child or adult daycare.
- For dependent care FSAs, the employee can contribute up to $5,000 per year if married and filing a joint return, or if a single parent. If married and filing separately, the limit is $2,500 per year per parent.
- Unlike a Health Care FSA, the employee pays for dependent care costs out of pocket and then requests reimbursement for those expenses after, up to the total amount that has been contributed so far through pre-tax payroll deductions.
- Funds can be used for work-related commuting, which also includes parking costs.
- The employee can elect to have up to $265 per month deducted from their paycheck pre-tax to fund the Transportation FSA.
- Plans vary, but generally, eligible expenses such as a parking garage or a parking lot costs for work and mass transit passes or bus transportation costs incurred when commuting to work can be reimbursed through a Transportation FSA.
- Similar to a Dependent Care FSA, the employee has access to funds already funded to their account through pre-tax payroll deductions. The employee pays for expenses out-of-pocket, then requests reimbursement after receiving documentation.
If an employee leaves the company during the plan year and has used more funds from their Health Care FSA than what has been contributed through payroll deductions, the employer is not able to recoup those funds from the employee. This is a slight risk for an employer as there is nothing stopping an employee from using all the funds available to them and leaving the company before paying more than just a few of the per pay period deductions for the FSA. On the flip side, if an employee leaves the company but still has funds available, generally, the employee forfeits those funds. In some instances, an employee can continue their Health Care FSA benefit through COBRA; be sure to check with your COBRA administrator to ensure the correct information is being provided to separating employees.
With multiple options, an FSA is a valuable benefit that employers can offer to employees.
An FSA is a great benefit to consider when making total rewards decisions. Adding an FSA will benefit employees and be cost effective for your company. FSAs give employees a highly tangible way to reduce out-of-pocket expenses for themselves and their dependents. There are minimal expenses to the employer providing the benefit and they offer tax savings that offset the minimal costs. With open enrollment season right around the corner, now is the time to consider options for your organization. If you have questions about which benefits would be right for your company to offer or how to determine which benefits would be most appealing to your employees, consider speaking with one of our benefits specialists. Our knowledgeable team would be happy to simplify the process of making benefits decisions for your organization, streamline benefits administration, and relieve the stress of open enrollment. Contact us today to get started!