What are the basic features of a Flexible Spending Account (FSA) and how does it save employees money?
An FSA is a benefit that allows employees to pay for qualified out-of-pocket healthcare and dependent care expenses with pre-tax dollars. Employees elect the amount they plan to spend during a plan year for each type of FSA (health and/or dependent care) and that election is withheld from their pay before Federal, State or Social Security taxes are determined, thereby reducing their taxable income. Employees will save between 25 to 50%, depending on their tax bracket.
As employees incur qualified expenses, they may be reimbursed by the FSA or, if available, use their debit card to pay for the expenses. Any unused funds are forfeited after the end of a plan year.
How does an employee get reimbursed by the FSA?
Employees must submit a claim to be reimbursed by the FSA. Claims may be submitted online or by using a Reimbursement Request Form, which is available in the Resources section of this website. Claims must be accompanied by itemized documentation for the expenses being claimed. Some FSAs also include a debit card which can be used to pay merchants directly from the FSA for qualified expenses.
Why does Alerus sometimes ask participants to turn in documentation for FSA debit card purchases?
IRS regulations require every debit card transaction to be substantiated to ensure it was for an eligible expense. In some cases, this substantiation happens electronically and there is nothing you need to do. If substantiation cannot happen electronically, ABG must ask participants to send documentation after their transaction is paid with the card.
What happens if I don’t send in the required debit card receipt?
Initially we will send a request for documentation either by email or by mail. If we do not have the receipt within 30 days we will send a second request. After another 30 days (60 days total) we will deactivate the debit card and send an email or letter requesting the amount be paid back to their employer or that the required documentation is sent to us.
Whose expenses are eligible for reimbursement under the FSA?
The FSA can reimburse healthcare expenses incurred by the accountholder as well as their spouse (using Federal definition), qualifying child(ren) and qualifying relative(s). Under Health Reform children are allowed to remain a dependent under the Health FSA through age 26, although they no longer qualify as a tax dependent. See your Summary Plan Description for additional information.
Spouses and qualifying dependents do not need to be covered by the employee’s health insurance plan to be eligible for reimbursement.
Can an FSA election be changed during the plan year?
An FSA election cannot be changed during a plan year unless the plan allows for life status events and the employee, their spouse or their qualified dependent experiences a life status event such as marriage, death, birth, adoption, divorce or change in employment for either employee or spouse. If a qualifying event occurs, the corresponding election change must be consistent with the event and the election must be changed within 30 days of the event. See your Summary Plan Description for a detailed list of qualifying events.