What's an FSA?
A Flexible Spending Account (FSA) is a benefit that employers can offer that allows employees to use pre-tax dollars to pay for out-of-pocket health insurance or dependent care expenses. We currently offer two types of FSAs: Healthcare and Dependent Care FSA.
With a FSA, you can enroll during the open enrollment period and elect how much you would like to set aside pre-tax for the year. The total amount is then broken up and deducted evenly from each paycheck for the remainder of the year.
For example, you begin work in June and enroll in an FSA on July 1st. You decide to put $1,000 in your FSA account. The $1,000 will be broken into even payments from July 1st through December 31st.
Once you are enrolled in an FSA and select the amount you would like to defer you can use those funds for different IRS approved medical expenses.
How does a Healthcare FSA work?
Healthcare FSA’s can cover medical, dental or vision expenses that you would otherwise pay for out-of-pocket, including co-pays and deductibles. Health insurance premiums are not eligible expenses. For a full list of qualified expenses please visit IRS Publication 502.
With the Healthcare FSA, there is a 2020 limit of $2,750 that you can set aside pre-tax. Healthcare FSA funds are tied to your employer's plan, that means even if you have already contributed to an FSA with a previous employer you are still eligible to contribute the full $2,750 at your new employer for the remainder of the year. You can elect to participate in an FSA during open enrollment and you must select a contribution amount at that time. You cannot make any changes or opt-out of the FSA later in the year.
How does a Dependent Care FSA work?
A Dependent Care FSA can reimburse you for the work-related cost of care for a qualifying dependent. For a full list of qualified expenses please visit IRS Publication 503.
A qualifying dependent is broadly defined as:
- A tax dependent of yours who is under age 13, or
- Any other tax dependent of yours, such as an elderly parent, who is physically or mentally incapable of self-care and has the same principal residence as you
- A spouse who is physically or mentally incapable of self-care and has the same principal residence as you
To qualify for a Dependent Care FSA you must be “gainfully employed”. Gainful employment usually means working or looking for work. If you are single, you may be reimbursed for expenses incurred due to gainful employment. If you are married, generally both you and your spouse must be gainfully employed or looking for work to be reimbursed for expenses. One spouse is treated as working during any month he or she is a full-time student or is not physically or mentally able to care for himself or herself. Your work can be full time or part time for your own business or in a partnership.
For 2020, employees may contribute up to $5,000 per year to a DCFSA if you are married and filing a joint return, head of household, or if you are a single parent. If you are married and filing separately, you may contribute up to $2,500 per year per parent.
An alternative to utilizing a Dependent Care FSA is the Dependent tax credit. IRS Publication 503 Child and Dependent Care Expenses contains detailed information on who qualifies for the credit. For some people the Dependent Care Credit may be more advantageous than utilizing a DCFSA. Please consult with a tax professional when making this decision.
Can my Healthcare FSA cover expenses for my dependents?
Yes, your Healthcare FSA can cover expenses for qualifying dependents, even if they are not currently covered under your employer-sponsored health insurance plan.
Qualifying dependents include:
- Your spouse
- Your qualifying child
- Your qualifying relative
Are my funds available for use immediately?
For the Healthcare FSA, all funds selected will be immediately available to you on day one of your plan and you do not need to wait to accrue the funds. For example, if you enroll on January 1st and elect to defer $500 in total for the year to your FSA, you could spend all $500 on the first day the plan is effective. FSA deferrals will then continue to be spread out for the rest of the year.
For Dependent Care FSA, you can only use funds as you contribute them into your account. For example, you've elected to defer $2,400 across 24 pay periods, after your first pay period, you will only have $100 (or $2,400/24) available to use.
Can I change my FSA contribution amount at any time?
Typically, no. You cannot decrease or increase your FSA contribution amount after its effective date unless certain exceptions apply. Changes may be allowed depending on a qualifying life event, but certain restrictions apply to what changes can and cannot be made.
When is my FSA effective?
All Justworks FSA plans run on a calendar year, beginning on January 1st and ending on December 31st. If you sign up for a plan mid-year, you can submit claims for bills incurred from your effective date through December 31. You cannot submit claims incurred prior to your effective date. However, if you previously had an FSA you may be able to be reimbursed if you are within your plan’s run out period.
For example, an employee is hired on June 9th and has an effective date of July 1st for their medical and FSA benefits. The employee can submit claims for any bills incurred between July 1st and December 31st of that year.
The effective date is designated by the company and must always be the 1st of the selected month. All plans end on December 31st regardless of when they started.
When do my FSA funds expire? Do they roll over if I don’t use them by December 31st?
All FSA funds expire on December 31st for active and benefits-eligible employees. FSAs through Justworks run on a calendar year (1/1 - 12/31), regardless of when you or your company joins. Funds do not rollover and unused funds on December 31st will be forfeited.
Be mindful of the IRS' "Use it or lose it" rule - if you contribute more funds to your FSA than you are able to spend during the plan year, then you will forfeit any unused FSA balance. However, you have until March 31st of the following calendar year to submit a claim for expenses incurred prior to December 31st.
Additionally, keep in mind that FSA funds will expire immediately at termination. Even if you have unused FSA funds, you may no longer use FSA funds for expenses incurred after your termination date. This is also the case if your employment status changes and leads to being ineligible for the benefit. If you have incurred expenses that have not yet been submitted you have 90 days from your termination date, to submit your claim(s) for reimbursement.
If I am on COBRA can I continue to use my FSA for qualified expenses?
Members who are on COBRA may be able to use FSA funds after termination. This determination is made case by case based, in part, on how much FSA funds have been used and contributed, and must adhere to the applicable IRS rules. To find out if you are able to continue using your funds please contact our Customer Service.
Please note, FSA funds are never eligible to be used for COBRA premiums.
If I change jobs and want to enroll in an FSA with my new employer, does my contribution limit reset?
FSA funds are associated with the employer plan and not with the individual employee. This means that you can elect the full IRS limit amount with each new employer, regardless of what you may have contributed to your FSA at your previous employer. It’s a good idea to keep in mind how many pay periods you have remaining for the rest of the year that will be used to divide the contributions per paycheck. If you only have a few paychecks remaining, you can expect to see higher deduction amounts if you elect to contribute the annual limit.
Can I use my FSA for expenses incurred before my FSA effective date?
No, the first date for which you can submit a claim is the effective date of your FSA plan. If you enrolled in an FSA that is effective February 1st, you cannot submit any claims for expenses that were incurred prior to February 1st. If you receive a bill from your provider in February, but for services provided to you in January, these expenses would not be eligible for you to use your FSA funds. Only services and expenses incurred on February 1st and moving forward will be eligible for you to use your FSA funds.
How long do I have to file a claim?
A claim can be submitted for up to 90 days after the FSA plan ends. Generally, this means you have until March 31st of the following year to submit claims for expenses incurred by December 31st for the FSA’s plan year.
However, if the FSA plan is terminated due to employee termination or the employee no longer being benefits eligible, the 90 day period would begin from that date.
Only expenses incurred up until the termination date are eligible for claims.
Can I have a Healthcare FSA if I have an HSA?
No, you cannot have a Healthcare FSA. However, you can have a dependent care FSA with a HSA.
If my spouse has an HSA, can I still have a Healthcare FSA? Or a DCFSA?
No, if one spouse is enrolled in an HSA or Healthcare FSA the other spouse can not enroll in the opposite benefit. This is because both accounts extend tax benefits to family members and having the two together violates the health coverage clause of the accounts.
If your spouse is already enrolled in a DCFSA you can enroll in a second DCFSA however the combined total can not exceed $5,000.
Can I have an FSA without being enrolled on insurance accessed by Justworks?
Yes, you do not have to be actively enrolled in a health plan through Justworks to be able to open an FSA though Justworks.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.