Flexible Spending Accounts (FSAs)
Flexible Spending Accounts (FSAs) allow you to pay for eligible expenses using tax-free dollars. Important: There is a “use it or lose it” rule imposed by the IRS. If you do not spend all the money in your FSA by March 31 of the following year for expenses incurred from January 1 – December 31, unused dollars will be forfeited per IRS regulations for pretax contributions.
Use It or Lose It
Note: There is a “use it or lose it” rule imposed by the IRS. If you do not spend all the money in your Healthcare, Limited Purpose or Dependent Care FSA by March 31 of the following year for expenses incurred from January 1 – December 31, unused dollars will be forfeited per IRS regulations for pretax contributions.
The Three Types of FSAs Are:
Plan Information
Plan Name: XXXX
Policy Number: #XXXX
Effective Date: XX/XX/XXXX
Network: XXXX
Healthcare FSA
Contribute up to $3,300 per year, pretax, to pay for copays, prescription expenses, lab exams and tests, contact lenses and eyeglasses.
Rollovers: If unused funds are less than $100, participation in the new plan year is required for the funds to roll over; otherwise, it is considered forfeiture. Participation in the new plan year is not required for unused funds ranging between $100 to $660 to roll over. Any amount over $660 will be considered forfeiture.
Dependent Care FSA
Contribute up to $5,000 per year ($2,500 if married and filing separate tax returns), pretax, to pay for daycare expenses associated with caring for elder or child dependents that are necessary for you or your spouse to work or attend school full-time. You cannot use your Healthcare FSA to pay for Dependent Care expenses.
Limited FSA
A Limited Healthcare FSA is a pretax benefit account that works with a Health Savings Account (HSA), allowing employees to set aside money to pay for qualified dental and vision expenses. Funds put into the plan avoid both Federal Income Tax and FICA, creating tax savings.
Remember: If you or your spouse are enrolled in a high deductible health plan (like our 2025 Anthem HDHP), you can only participate in the Limited Purpose FSA for dental and vision expenses.
How Much Could You Save?
Here’s an example. Let’s say Tom decides to set aside $2,000 in an FSA for the year. Normally, on that money, he’d pay $560 in federal income tax, $100 in state income tax, and $153 in FICA tax. So, by contributing that $2,000 to his FSA, he’ll get an $813 tax savings for the year.
Without the FSA, Tom would pay:
- 28% in federal income tax: $560 savings
- 5% in state income tax: $100 savings
- 7.65% in Federal Insurance Contributions Act (FICA) tax: $153 savings
His total tax savings for the year with an FSA: $813