When is a Health Flexible Spending Account an Excepted Benefit?


When is a Health Flexible Spending Account an Excepted Benefit?

A health flexible spending account (FSA) is required to be an excepted benefit in order to be in compliance with many of the regulations enacted by healthcare reform. There are two conditions which must be met in order for a health FSA to be considered an excepted benefit.

1. Availability Condition

The availability condition means that the health FSA cannot be the only benefit offered by the employer. The employer must also offer another non-excepted group health plan such as medical coverage.

2. Maximum Benefit Condition

The maximum benefit condition refers to how much is available in the health FSA. This condition is met when the maximum amount available is not more than twice the employee salary reduction, or the employee salary reduction plus $500.  For example, if an employer wants to make a contribution to the health FSA, they should structure the contribution so that it is either a matching contribution based on the election made by the employee or no more than $500.

To view a chart to help determine if a health FSA is an excepted benefit, click here.



BusinessPlans, Inc. – myCafeteriaPlan does not intend to provide legal or tax advice and information contained in this article should not be interpreted as such. Regulations governing pretax plans are often open to interpretation and should be reviewed with your legal or tax advisor before making any decisions regarding your plan.