With 2019 spending having topped out at around $3.8 trillion, healthcare is one of the single greatest out-of-pocket expenses for many Americans and 1 in 7 families struggle to pay their medical bills. Flexible Spending Accounts (FSAs) allow employees to set aside money from their paycheck before taxes to cover common medical, dental, and vision expenses that they would normally pay out of pocket, all while reducing their tax liability.
These accounts cover things like insurance deductibles, co-payments for doctor visits, medical equipment, eyeglasses, dental work, prescription drugs, and even over-the-counter medication like pain relievers and cold medicines. When used properly, FSAs can help reduce the stress of affording medical expenses.
Here are a few tips to help your employees make the most of their FSA.
Know eligibility rules
When it comes to FSAs, eligibility is everything. Whether you’ve offered an FSA for years or you’re rolling it out for the first time, it pays to make sure that your employees know what purchases are eligible and which ones are not.
Many plan administrators lean on third-party resources like FSAStore.com to provide participants with up-to-date eligibility lists, helping your employees avoid the need for repayment when they inadvertently use their FSA funds on ineligible expenses.
It’s important to note that the CARES Act expanded FSA eligibility to include over-the-counter (OTC) medicines without a doctor’s note, as well as feminine care products.
Both physical and electronic copies of the eligible/ineligible list should be available to ensure that employees can access the list anywhere. Be sure to share Flexible Spending Account Basics with your employees to help them learn more about this valuable benefit.
Extra time to use funds
For years, a big downside with FSAs was that they were a ‘use it or lose it’ benefit. Any amount that hadn’t used by the end of the plan year would be forfeited, meaning that your employees’ hard-earned funds may be lost.
You can help your employees use all of their FSA funds by offering either the 2.5-month extension or the carryover provision in your plan. The extension provides employees with additional time in the next plan year to spend unused funds. The carryover, updated in 2020, allows employees to roll up to $550 in unused funds into the next plan year.
Both provisions can provide your employees with much needed relief from the dreaded ‘use it or lose it’ rule. Talk to your plan administrator and HR team about implementing one of these cost-saving options.
Keep a record
Since the IRS requires plan administrators to verify that 100% of FSA transactions are for eligible medical or dependent care expenses, it’s important for your employees to keep their receipts for all FSA purchases. Having receipts allows your FSA to stay compliant with IRS regulations.
When expenses can’t be verified automatically at the point of sale, plan administrators may request receipts for those purchases. Encourage your employees to keep a file of all FSA-related expenses by scanning all of their receipts and retaining them to avoid any discrepancies.
More than just medical expenses
While your employees can make contributions for their approved health care expenses, that’s not the only way that your employees can save. Expanding your benefit offerings to include a Dependent Care FSA can also allow them to save on their child care expenses.
Dependent Care FSAs are used to pay for before- and after-school care for children under age 13, day camps, and adult care for elderly parents. Employees can contribute up to $5,000 per household per year to their Dependent Care FSA. Since the deductions are taken out pre-tax, employees can save money by reducing their tax liability.
Plan administration you can trust
Selecting the right benefit plans for your company and employees can be a daunting task for many small and mid-size employers – that’s where we come in. Sheakley’s benefits experts provide top-notch benefit administration, ensuring simple, efficient and successful benefits programs for your employees including FSAs, HSAs, parking and transit plans, and other valuable benefits.