Flexible Spending Accounts (FSA)

Flexible Spending Account (FSA) Calculator >
FAQs about Flexible Spending Accounts (FSA) >




A Cafeteria Plan is a reimbursement plan governed by IRS Section 125 which allows employees to contribute a certain amount of their gross income to a designated account or accounts before taxes are calculated.

Flexible Spending Account (FSA) IRS Rules

The following are guidelines established by the relevant sections of IRS code for Medical Flexible Spending Accounts and Dependent Daycare FSAs (or DCAPs).

Medical and Dependent Daycare Accounts

  • Only employees participating in the plan can submit claims for reimbursement.
  • Participants can submit claims at any time during the current claim period (the plan year or period designated in the employer’s Plan Document and/or Summary Plan Description) and for a specified period after the claim period (called the “Run-Out Period”) as defined by the employer’s Summary Plan Description (SPD).
  • All expenses must be incurred during the plan year to be eligible for reimbursement. In addition, any money left in a participant’s account(s) after all reimbursements (for expenses incurred during that plan year) have been processed cannot be carried forward or returned; nor can any unused funds in an account be used for expenses eligible for reimbursement in another account.
  • Terminated employees can submit claims for a specified period after the date of termination (if so stated in the SPD), as long as the claim date of service occurred prior to the termination date and while the employee was a participant in the plan.
  • Participants cannot receive payment from any other source for expenses reimbursed by the plan and must certify (by signing the claim voucher) that they are not eligible to bill any other source for the expense submitted.
  • Expenses reimbursed by the plan cannot be claimed for income tax purposes.
  • Recurring expenses or expenses from service dates spanning two plan years cannot be submitted on one claim form. Recurring expenses must be submitted and reimbursed as they occur, and services spanning two plan years must be split and submitted separately (in each claim period).

Dependent Daycare Accounts Only

  •  A participant is only eligible to have a Dependent Daycare Account if he or she pays dependent daycare expenses in order to be able to work. If married, the participant’s spouse must also work, go to school full time, or be incapable of self-care.
  • Only dependents under the age of thirteen or dependent adults or children over the age of thirteen who are incapable of self-care are covered.
  • Dependent daycare services may take place either inside or outside the home.
  • A participant’s Maximum Contribution Amount cannot be more than the smaller of either of the following:
  • The smaller of the participant’s or the participant’s spouse’s income. If the participant’s spouse is a full-time student or incapable of self-care, he or she is considered to earn: $2,400/year with one dependent or $4,800/year with two or more dependents.
  • $5,000/year if a participant’s tax filing status is “married filing jointly” or “single head of household” or $2,500/year if the status is “married filing separately.”
  • Expenses are not eligible if the service provider is the participant’s child or stepchild and is under the age of 19, or if the participant claims the provider as a dependent for income tax purposes.
  • In addition to the documentation required for all reimbursable expenses, dependent daycare claim submissions must include:
    • Provider’s Taxpayer Identification Number (TIN) or Social Security Number (SSN)
    • Dependent’s age
    • Signature of the provider
  • Dependent daycare reimbursements cannot exceed the election amounts deposited into the account to date, minus any reimbursements previously paid.

Change of Status Criteria for Medical Accounts

In order to make a mid-year change of election in a participant’s medical account, the qualifying event must be permitted by the employer’s Plan and fall into one of the categories allowed by the IRS.  Examples of these categories include :

  • A change in the participant’s legal married status
  • A change in the participant’s number of dependents

If such a qualifying event occurs and the participant wishes to make a change in his or her election (consistent with the resulting gain or loss of eligibility for coverage), the plan administrator must be notified within the time limit specified by the Plan (normally within 30 days of the event).  To file a Change of Status form, please see your employer.

Change of Status Criteria for Dependent Daycare Accounts

In order to make a mid-year change of election in or termination of a participant’s dependent daycare account, the qualifying event must be permitted by the employer’s Plan and fall into one of the categories allowed by the IRS.  Examples of these categories include :

  • A change in the participant’s number of dependents
  • A change in the cost of dependent daycare
  • A change in dependent daycare providers

If such a qualifying event occurs and the participant wishes to make a change in his or her election (consistent with the resulting gain or loss of eligibility for coverage), the plan administrator must be notified within the time limit specified by the Plan (normally within 30 days of the event).  To file a Change of Status form, please see your employer.

 

 

FSA Eligible Expenses and Items

Flexible Spending Account (FSA) Calculator

 


FAQs about Flexible Spending Accounts (FSA)

Questions pertaining to cafeteria plans and flexible spending accounts (FSA)

Can I be reimbursed for a service that has been provided although I have not yet paid the bill?

The operative date for claim reimbursement is the service date, not the date the expense is paid. You may submit expenses billed to you before you remit payment, but you may only submit the expense once. You may not submit the expense again after it has been paid.

Can I change my election after the plan year starts?

You can only change your election if you have a qualifying change of status event. Qualifying events include:

  • A change in the participant’s legal married status
  • A change in the participant’s number of dependents

For more information, see IRS Account Rules.

Does it save me more money to use a dependent care FSA or to receive the dependent care credit on my tax return?

In general, the higher your adjusted gross income, the more likely it is that you will benefit more from participating in the dependent care FSA than from taking the tax credit. Note that the amount you elect to place in your dependent care account reduces your potential tax credit.

Does participating in a cafeteria plan reduce my Social Security benefits when I retire?

Yes. Generally speaking, however, the benefit of the tax savings now more than outweighs the reduction in Social Security benefit after you retire. Discuss your specific financial situation with a tax consultant.

How are orthodontic expenses reimbursed?

Orthodontic expenses are eligible to be reimbursed in the same way as any other medical expense. However, because such treatments generally cover an extended period of time, you have the option of scheduling monthly reimbursements rather than payment up front. In addition, if your current election does not cover the total expense of the treatment(s), it can be reimbursed over multiple plan years as long as the treatment dates occur during those years.

How do I benefit from participating in an FSA?

There at least two significant ways to benefit from an FSA. The first is by taking advantage of the tax savings. By reducing your gross income, you pay less in taxes, take home more pay and have the freedom to choose how your money is used or invested. The second benefit is the “cash flow” increase built into the medical FSA (not the dependent care FSA). This means that no matter how much money you have actually contributed to the plan at any given point, you can still be reimbursed up to your entire annual election. So a major medical expense at the beginning of the claim period can be reimbursed even though few, if any, deposits have been made into the account at that time. This applies to the medical FSA only.

How do I find out the balance of my medical and dependent care FSAs?

Each time you are reimbursed for a claim, myCafeteriaPlan will provide a “statement of account” with your reimbursement check to let you know the balance of your remaining funds. In between statements, you can check your balance online by visiting myCafeteriaPlan’s Account Login, or by contacting a myCafeteriaPlan representative.

How do I get reimbursed for my expenses?

Using a Claim Form, you may submit your claim and supporting documentation to myCafeteriaPlan by mail, fax or electronic submission. Please visit the Contact Us page for more information.

For more detail on preparing a claim for submission, visit the Claim Submission page.

How do I track my account(s) online?

To login to your account, go to the myCafeteriaPlan Account Login page. There you will be prompted to enter a Username and Password. Once you are logged in, you can change your Username and Password and change or edit your personal information. You can also check your account balance(s) and verify the status of any claims you submitted.

Please note: When updating your personal information it is important to provide your email address for the fastest and most efficient communication.

How does my net pay increase by participating in a cafeteria plan?

A Cafeteria Plan is a benefit provided by your employer which allows you to contribute a certain amount of your gross income to a designated account or accounts before taxes are calculated. These accounts are for insurance premiums and medical or dependent care expenses not covered by your insurance, from which you can be reimbursed throughout the plan year or claim period as you incur the expenses. A cafeteria plan allows you to reduce your gross income, thereby reducing the amount you pay in Federal, Social Security and some State taxes – a savings of between 25% and 40% of every dollar you contribute to the plan.

How often will my claims be reimbursed?

Your company’s claims will be reimbursed on regularly scheduled processing days. You can obtain the processing/reimbursement schedule by contacting a myCafeteriaPlan representative or your Human Resources department. myCafeteriaPlan has a submission deadline of noon (12pm EST) on the day prior to your company’s processing date. In other words, any claims received by noon (12pm EST) the day before the processing date will be reimbursed (if eligible) on that date.

What expenses are eligible for reimbursement from an FSA?

Amounts paid to a daycare provider either in or out of the home are eligible, as long as the provider is not a dependent or relative under the age of 19. Pre-school tuition is reimbursable, but tuition and expenses from grade K-12 schooling are not.

For medical accounts, any out-of-pocket expenses related to services covered by insurance, including co-pays, deductibles, prescription drugs, and out-patient elective surgery; dental, orthodontic and ophthalmologist’s fees and expenses including prescribed treatments and maintenance (such as contact solution); chiropractic, psychiatric, and psychologist’s fees and expenses; disability-related expenses; and over-the-counter (non-prescription) drugs such as pain relievers and allergy medications are eligible.

In general, any treatment for a specific medical condition is reimbursable; cosmetic or preventative expenses are not. For example, teeth-whitening and multi-vitamins are not eligible, but prescription sunglasses and non-prescription allergy medicines are.

Insurance premiums are not eligible for reimbursement.

View a more detailed list of Eligible Expenses.

What happens if I leave my place of employment while participating in an FSA?

Expenses incurred during the plan year prior to termination can be submitted for reimbursement for a period specified by the employer in the Plan Document (usually up to 30 days after termination).

What happens if there is money left in my account at the end of the claim period after all my eligible expenses have been reimbursed?

Unless your company’s plan document states otherwise, any funds remaining after all eligible reimbursements have been made is forfeit to the cafeteria plan; these funds are used to offset plan losses and expenses.

In order to prevent the loss of funds, it is important to plan carefully so that your annual election matches your actual expenses as closely as possible. Of course, it is impossible to project with 100% accuracy, so you may come up short or have a little money left at the end of the claim period.

However, it is important to realize that loss of funds does not necessarily indicate a loss out-of-pocket. In most cases, even when participants claim less than their election, they still save money by participating in the plan. For example, if your calculated annual tax savings is $1,200 (based on a $4,800 election) and you only use $4,600, you’ve still saved money – in this example, $1,000.

What if I am not billed for an expense until after the end of the claim period?

After the claim period, there is a “Run-Out” period as specified in the SPD for submitting claims incurred during the claim period. This allows all eligible expenses up to the very last day of the claim period to be submitted and reimbursed.

What is a Flexible Spending Account (FSA) plan?

A Cafeteria Plan is a benefit provided by your employer which allows you to contribute a certain amount of your gross income to a designated account or accounts before taxes are calculated. These accounts are for insurance premiums and medical or dependent care expenses not covered by your insurance, from which you can be reimbursed throughout the plan year or claim period as you incur the expenses. A cafeteria plan allows you to reduce your gross income, thereby reducing the amount you pay in Federal, Social Security and some State taxes – a savings of between 25% and 40% of every dollar you contribute to the plan.

What is a Flexible Spending Account (FSA)?

An FSA is an account into which your contributions (from pre-tax salary reductions) for medical and/or dependent care expenses are deposited. It functions like a checking account in that the cafeteria plan administrator (myCafeteriaPlan) actually writes you checks for the medical and dependent care expenses that you submit.

What is the Claim Period?

The Claim Period is the period specified in the SPD of at least 12 months that determines the beginning and ending dates of expenses eligible for reimbursement, occurring simultaneously with the plan year. In other words, it is the period of time that claims can be incurred and reimbursed from current plan contributions. The beginning date always coincides with the beginning of the plan year, but the end date may not.

What is the maximum amount of money I can elect annually for an FSA?

For a medical FSA, the maximum annual election is set by your company and can be found in the Summary Plan Description (SPD). For a dependent care FSA, the maximum annual election is set by the IRS and is as follows:

  • Married Filing Jointly or Single Head of Household, $5,000
  • Married Filing Separately, $2,500
What is the Plan Year?

The Plan Year is the 12-month period specified in the SPD that determines the beginning and ending dates of plan contributions (salary reductions).

Who is considered a dependent?

For medical accounts, the general rule is that if you can claim an individual as a dependent on your tax return, then you can claim them under the Cafeteria Plan.

For dependent care accounts, only children under the age of thirteen or adults or children over the age of thirteen who are incapable of self-care are considered dependents. In addition, the dependent must reside with the participant for the majority of the year in order to be eligible for coverage under the dependent care FSA.

Please note: to be eligible for a Dependent Care FSA, a participant must be employed and, if married, the participant’s spouse must also be employed. A change in employment status for either the participant or the participant’s spouse may result in a change in or loss of eligibility.

For more information, see IRS Account Rules.