FSA and DCA Frequently Asked Questions
Here’s how flexible spending accounts work:
- Estimate your eligible expenses for the upcoming plan year (health care and/or dependent care).
- Determine how much you want to have set aside from your pay to go into your FSA to pay for your eligible expenses for the coming year (this amount is called your “election”).
- The money you elect for your FSA will be automatically deducted from your paycheck on a pretax basis and credited to your FSA over the course of the year through payroll deduction.
- When you have an eligible expense, you can submit a claim to be reimbursed from your FSA. (Certain claims are submitted automatically – read further for details).
- For health care FSA claims, you can be reimbursed even if your FSA balance is not enough to cover your claim (up to your annual election amount).
A flexible spending account is an employer-sponsored benefit that allows you to set aside pre-tax dollars to pay for eligible dependent care expenses and/or health care expenses for you, your spouse, and your eligible dependents.
With an FSA, the money you set aside to pay for health care and/or dependent care expenses come out of your salary before taxes are withheld. This reduces your taxable income, and consequently, your tax liability. You pay for your eligible expenses with tax-free money from your FSA.
Setting aside pre-tax dollars means you pay fewer taxes and increase your take-home pay by your tax savings. You save money on eligible expenses that you are paying for out of your pocket.
The amount you save depends on your tax bracket.
For example, if you are in the 20 percent tax bracket, you can save $20 on every $100 spent on eligible health care expenses such as dental checkups, prescription eyeglasses, and medical deductibles and copayments.
The difference between opening an FSA versus claiming the same expense when filing your federal income taxes is that the Schedule A (IRS Form) requires a taxpayer to have 10% of their adjusted gross income (AGI) in health care expenses before they are able to deduct any health expenses. Most families do not have enough health care expenses to ever take a deduction.
Another benefit is that money in your health FSA is available to you on the first day of the plan year. For example, if you elect to contribute $800 in a health FSA for the plan year, this $800 is available to you on the first day of the plan year.
The health care FSA and the dependent care FSA are completely separate accounts for different uses. Money from one FSA cannot be used for the other account’s purpose.
- Sample health care FSA expenses: doctor’s office visits, physical exams, hospital care, prescriptions, etc.
- Sample dependent care FSA expenses: licensed daycare, elder care, preschool programs, etc.
Your health care FSA can be used to pay for a variety of health care expenses incurred by you, your spouse and your dependents.
Deductibles, copayments, dental care and vision care not otherwise covered by a health plan are all eligible health care expenses.
You may also use your FSA funds to reimburse expenses under a spouse’s health plan for copayments, deductibles or coinsurance. Eligible health care expenses are outlined in IRS Publication 502. Below are some other important limitations you should be aware of:
- Expenses reimbursed under your health FSA cannot be reimbursed under any other plan or program. Only your out-of-pocket health care expenses are eligible for reimbursement. Plus, expenses reimbursed under a health FSA may not be deducted when you file your tax return.
- FSAs have a start date and an end date, and the time in between is called the plan year. Expenses must be incurred during the FSA plan year. As noted in IRS guidelines, "Expenses are incurred when the employee (or the employee’s spouse or dependents) is provided with the medical care that gives rise to the medical expenses, and not when the employee is formally billed, charged for, or pays for the medical care.” This means the date of service must be within the current plan year and not when you pay for the service.
- Long term care health insurance and health insurance premiums are not an eligible expense under a medical FSA.
You can submit medical FSA claims for family members that include your legally married spouse and dependents, or non-dependent children through age 26 – any one eligible for coverage under your medical insurance policy under the District’s plan.
Yes, but they require a prescription. IRS rules state that over-the-counter (OTC) medicines and drugs are not eligible for reimbursement under your health FSA unless prescribed by a doctor (or another person who can issue a prescription) in the state where you purchase the OTC medicines. These rules do not apply to insulin (including OTC insulin).
Any claim you submit for reimbursement that has an OTC medicine expense must include a Request for Reimbursement Form and one of the following types of supporting documentation:
- A written or electronic OTC prescription along with an itemized cash register receipt that includes the merchant name, name of the OTC medicine or drug, purchase date, and amount
- A printed pharmacy statement or receipt from a pharmacy that includes the patient’s name, the Rx number, the date the prescription was filled, and the amount. Allergy medication, aspirin and pain relievers, as well as first aid creams and ointments are examples of OTC medicines that require a prescription.
Eligible dependent care expenses include in-home childcare, payments to licensed day care facilities, before or after school programs, and elder care that are necessary for you, and if you are married, your spouse, to be gainfully employed.
You may be reimbursed for dependent care expenses incurred for any individual in your family who’s under age 13 and can be claimed as a dependent on your federal income tax return, or for a spouse or dependent who’s not able to care for him or herself.
These expenses must be incurred, regardless of when billed or paid, while you’re working or looking for work. Unlike a health care FSA, you’re only able to receive a reimbursement from a dependent care FSA if sufficient funds have accumulated in your account from payroll deductions.
No. You may only submit claims for reimbursement for expenses incurred before your child reaches the age of 13.
You cannot claim a dependent care tax credit for amounts received under an employer’s FSA plan.
You may wish to consult with a tax advisor to determine whether the FSA plan or the dependent care tax credit is more beneficial in your individual case.
Generally, the higher your income, the more beneficial it is to participate in the dependent care FSA.
If you contribute to an HSA, you may only participate in a limited-use FSA. A limited-use FSA allows reimbursement of dental and vision services only.
Expenses that are not approved are called “ineligible expenses.” Ineligible health FSA expenses include:
- Cosmetic surgery and procedures, including teeth whitening
- Herbs, vitamins, and supplements used for general health
- OTC medicines that you don’t have a prescription for (except insulin)
- Insurance premiums
- Family or marriage counseling
- Personal use items such as toothpaste, shaving cream, and makeup
- Prescription drugs imported from another country
Also, as described in a previous question, you can’t use your FSA for:
- Services that take place before or after your coverage period
- Expenses that are reimbursed by another plan or program, including a health care plan
These are only a few of the examples of expenses that aren’t covered by a health FSA.
For medical expenses that apply towards your HRA deductible, csONE will receive information directly from BCBS. For expenses not applied towards your BCBS deductible or copayment, you will need to submit a claim directly.
Your out-of-pocket medical expenses will first be deducted from your available FSA funds until you have met the HRA deductible.
Yes. The FSA plan caps annual healthcare reimbursement at $2,500 per year for teachers, Administrators and all other exempt level staff. The annual healthcare reimbursement cap is $800 for support staff. Dependent care reimbursement is capped at $5,000 per year for all employees.
Yes, if your spouse is eligible to make contributions to a health FSA. Each spouse may contribute up to the maximum limit to their own health FSA. This applies even if both spouses participate in the same health FSA plan sponsored by the same employer.
Yes, provided you meet the eligibility requirements for an FSA.
If you leave your place of employment during the plan year, you have a short period after termination to submit claims for reimbursement. Services and health care expenses must be incurred before your termination date unless you continue to contribute to your health care FSA account through COBRA (if eligible).
The IRS has a “use or lose” rule for FSAs.
This rule states that you’ll lose any unused money still in your account at the end of the plan year.
Carryover will be allowed up to $500. Carryover funds must be used within the following plan year.
Any unused carryover funds will be forfeited and will no longer be available for your use. The unused portion of your health FSA cannot be paid to you in cash or other benefits, and you can’t transfer money between FSAs.
To reduce your risk of losing money at the end of the plan year, carefully estimate your expenses when choosing your annual election amount.
Any money remaining in the dependent care FSA at the end of the plan year and not submitted within the claims run-out period (described below) will be forfeited. Expenses must be incurred within the plan year. Reimbursements from this account cannot exceed the current balance. Reimbursements may only be for services already provided.
Your election can’t be changed during the plan year unless you have a change in status or other qualified event. Status changes that permit you to change your election are defined under IRS tax code. A summary of these changes are provided below:
- Changes in marital status (e.g., marriage, divorce or annulment, legal separation, death of spouse)
- Changes in the number of dependents (e.g., birth, adoption or placement for adoption, death of a dependent)
- Changes in employment status that affects coverage eligibility (e.g., termination of employment, commencement of employment, full-time to part-time, part-time to full-time)
- Changes in dependent’s eligibility under the District’s plan (e.g., lost or gained eligibility due to age, student status, marital status)
- Changes in residence affecting eligibility
- Certain court orders, Medicare or Medicaid
If you experience a change in status and wish to revoke your election, please be sure to complete a Revocation of Benefit Election and Compensation Redirection Agreement (available on the District website) and submit to Sandy Emery. This completed form must be received at least two weeks prior to the payroll date in which you wish to revoke your election to allow time for processing.
If you stop working for the District or you lose your FSA eligibility, your plan participation and your pre-tax contributions will end automatically.
Expenses for services you have after your termination date are not eligible for reimbursement.
Please Note: You may be entitled to elect COBRA continuation coverage under the health FSA and receive reimbursement for qualified expenses incurred after your termination, but only if you continue to make the required FSA COBRA premium payment using your money after taxes have been taken out.
However, you generally do not have the right to elect COBRA continuation coverage if the cost of COBRA continuation coverage for the remainder of the plan year equals or is more than the amount left in your FSA (excluding your carryover dollars, if applicable).
If you have any questions related to this notice, please email Sandy Emery at firstname.lastname@example.org.
If you have questions related to the reimbursement process or claims, please call csONE at (888) 227-9745 x 2040.
The information contained herein is meant as a guide only. If the information herein conflicts with federal or state laws or regulations, IRS rules, the collective bargaining agreement or the plan document, these other official sources shall govern.