A Benefit Strategies Flexible Spending Account (FSA) is a pre-tax account used to pay for out-of-pocket and eligible medical, dental, vision and hearing expenses not covered by the medical plan.
The most common FSA plans are the Healthcare Reimbursement Account (“Health FSA”), the Dependent Care Assistance Account (“Dependent Care FSA”) and the Limited Purpose FSA. Each allows employees to set aside pre-tax dollars to be used for designated eligible expenses and is explained below. Employers choose which plan type(s) to offer to employees.
The Health FSA is for out-of-pocket medical, dental, vision and hearing expenses incurred by the employee and the employee’s qualifying eligible dependents. A qualifying eligible dependent is generally:
The Dependent Care FSA is for employee expenses related to the cost of dependent care while the employee is at work (if married, the spouse must be employed or attending school full time). Eligible dependents must be under the age of 13. Tax dependents age 13 and older are also eligible if they are physically or mentally incapable of self-care and reside in the employee’s home at least half the year.
The Limited Purpose FSA is very similar to a Health FSA. The difference is that the Limited Purpose only reimburses for eligible dental and vision expenses. This plan is most frequently used when the employer also offers a Health Savings Account (HSA), as per the IRS, someone enrolled in a full Health FSA is not eligible to make or receive HSA contributions.