What is it?
Sometimes referred to as a cafeteria plan, flex plan, or a Section 125 plan, a Flexible Spending Account lets you fund an account with pre-tax dollars. During the year, you have access to this account to help pay for eligible out-of-pocket medical, dependent daycare or transportation expenses.
How does it benefit me?
- You decide how much to contribute to the plan each year based on you and your family’s needs for covered expenses.
- Your contributions to the plan are made automatically through payroll deduction.
- Because you use tax-free dollars to pay these expenses, you increase your spending power and realize substantial tax savings.
- You can receive reimbursement for your entire claim, up to the amount you elected to contribute for the plan year, regardless of what’s been deducted from your pay to date
- You can file a claim as often as you want. No waiting until the end of the year.
What else do I need to know?
- Unless your employer’s plan has a carry-over provision, the plan is use-it-or-lose it. If you don’t spend all the money in your account by the end of the year, you will forfeit the balance. Plan wisely.
- Once you have decided the amount to contribute to the plan, it is set for the rest of the plan year, unless you have a change status, like getting married, having a baby, or an employment change. Again, plan wisely.
- Proper documentation, like an Explanation of Benefits statement from your insurance company or receipt for over-the-counter medications, must accompany your claim form.
How a Flexible Spending Account Works
Say you make $2,000 each month and decide to participate in your employer’s Flexible Spending Account plan. Your out-of-pocket insurance premiums, as well as eligible health and daycare expenses, are paid using tax-free dollars. This creates an additional $100 dollars extra in your pocket each month!
Types of Flexible Spending Accounts
Depending on your employer’s plan, you can have a Flexible Spending Account for the following expenses:
This account reimburses you for out-of-pocket healthcare expenses not covered by insurance. During the year, you can be reimbursed directly from your account for those qualified medical, dental and vision expenses incurred by you or your legal dependents regardless of whether they are enrolled on your employer’s group insurance plans.
Dependent Daycare Account:
This account reimburses you for daycare expenses for eligible children and adults. To qualify, your dependent must be:
- A child under the age of 13, or
- A child, spouse or other dependent that is physically or mentally incapable of self-care and spends at least 8 hours a day in your household.
Qualified expenses for reimbursement include adult and child daycare centers, preschool, and before/after school care by either licensed providers or non-licensed providers (as long as they meet certain requirements).
Premium Savings Account:
This account allows you to pay for your portion of your employer-provided medical, dental and vision insurance premiums with tax-free dollars. Once you elect to have insurance premiums deducted on a tax-free basis at open enrollment, you cannot change your election mid-plan year unless you have a qualifying change of status.
Please note: You cannot drop your insurance coverage mid-plan year due to financial hardship.
Transportation Fringe Benefit Account:
This account reimburses you for commuter expenses when using public transportation such as vanpool, ferry, bus, or train with tax-free dollars. This benefit does not fall under the Flexible Spending Account so check with your employer to see if it is offered as a benefit.
Please note: You are only reimbursed as much as you have had deducted from your pay, not your entire plan year election up front.