FAQ: Flexible Spending Accounts (FSA)

What is a Flexible Spending Account (FSA)?

A Flexible Spending Account (FSA) is a tax-favored program offered by employers that allow their employees to pay for eligible out-of-pocket medical, vision, and dental expenses and dependent care expenses with pre-tax dollars. The money is taken out of your paycheck pre-tax to reduce your take home salary to decrease income taxes. The participant will then be able to use those funds for FSA eligible expenses. The participant will save 20-40% more on out-of-pocket health care and dependent care expenses.

Participating in an FSA is voluntary and is not linked to your insurance. If you are enrolled in your groups health insurance, you will not be automatically enrolled in the FSA.  Make sure you elect to enroll in the FSA during the open enrollment session.

The IRS annual election for the healthcare FSA is $2,600 per individual. These funds can be used by the participant, the spouse of the participant, and the dependent of the participant.  The IRS annual election for Dependent Care FSA is $5,000 per household, or $2,500 per participant if you are married but file taxes separately.

What is the difference between a Health Care FSA, a Limited Purpose FSA, and Dependent Care FSA?

Health Care FSA: The Health Care FSA pays for qualified medical, vision, and dental expenses not covered or reimbursed by your health plan or any other type of insurance.

Limited Purpose FSA: The Limited Purpose FSA pays for qualified expenses on dental and vision. Typically, a Limited Purpose FSA is paired with an HSA.  This means you are more than likely enrolled in a high deductible health plan.  You will use your HSA funds for your medical expenses and the Limited Purpose FSA funds can be used for your vision and dental expenses you will incur during the plan year.

Dependent Care FSA: The Dependent Care FSA pays for child care 13 years or younger or an adult that needs 24 hour care so you are able to work full time and/or attend school full time.

How does the FSA work?

During open enrollment, you will elect an annual amount or contribution for your FSA. Look at your medical expenses from the previous plan year and estimate the medical, vision, dental, and/or dependent care expenses you may incur during the plan year. Per IRS guidelines, the annual election cannot be changed or altered unless you experience a qualifying event.  A qualifying event is one of the following:

  • A change in material status, such as marriage, divorce, or death of your spouse
  • A change in the number of your dependents, such as a birth or adoption of a child, or a death of a dependent
  • A change in employment status for you, your spouse, or dependent that affects eligibility
  • An event that causes your dependent to satisfy or cease to satisfy an eligibility requirement (i.e. dependent turning 14 years old or 26 years old)
  • A change in residence for you, your spouse, or dependent
  • A change in cost or coverage

Note: A dependent is anyone you claim on your federal income tax return or someone with whom you jointly file a federal income tax return.

Once you enroll in the FSA, deduction will be taken out each pay check dependent on your pay schedule. Keep in mind all your FSA funds will be available on the first day of the new plan year, but payroll deductions will be spread out throughout the plan year.  For Dependent Care FSA, the deductions will be taken out each pay check too, but funds will only be available when the funds are accrued and in your FSA account.

What is the difference between a grace period vs. a run out period?

Grace Period:

A grace period extension can apply to both a healthcare FSA and dependent care FSA. The grace period begins on the first day immediately following the last day of the plan year.  In most cases, it ends two months and 15 days later.  You may incur eligible FSA expenses and use the funds remaining in your account to cover those expenses.  This provides you the opportunity to maximize your FSA funds and avoid forfeiting money to your employer through the IRS “use-it-or-lose-it rule.”

Confirm with your employer to see if they offer a grace period and if they do confirm the time-frame as it is different for all employers.

Note: If you employer offers a grace period, you will not have the carryover option. Per IRS regulations, you cannot offer a grace period with a carryover.

Run Out Period:

A run out period is a predetermined time-frame after the plan year ends where you can file both healthcare FSA and dependent care FSA claims for expenses incurred during the plan year.

IRS rules state that you will forfeit any unused funds to your employer when the run-out period ends, unless your healthcare FSA has a carryover feature, which allows you to carry over up to $500 of unused funds (see details above).

Confirm with your employer if they are offering a run out period and the duration of the time-frame.

What is the different between the 'Use-it-or-Lose-it' rule vs. carryover?

‘Use-it-or-Lose-it’ rule:

Per IRS regulations, you forfeit any money for which you did not incur an eligible expense under your FSA account(s) during the plan year. When you contribute to an FSA, you agree to reduce your salary by a specified amount.  Since you never received that money, you can’t be taxed on it.  If you were to receive the unused amount at the end of the plan year, the IRS would consider this ‘deferred compensation.’  Section 125 of the IRS Code prohibits deferred compensation, thus the ‘use-it-or-lose-it’ rule.  Therefore, you should plan carefully and conservatively, when making your annual FSA election.

Remember that reimbursement for expenses is based on when an expense is incurred, not when it is paid.

Carryover:

Per IRS regulations, you can carryover up to $500 from your previous plan year into the next plan year should the employer offer this plan design. This means up to an additional $500 will be available for you to use in your next plan year in addition to your annual election. You can elect the IRS maximum of $2,600 and carryover up to $500 for a total of $3,100 for your plan year. If you have money in your account that is over $500, that money will be forfeited to the employer, and the remaining $500 will carryover. The $500 will automatically roll over to your account after your run out period.

Confirm with your employer if they are offering a carryover option as it will help you determine your annual election.

What is a Qualifying Life Event (QLE)?

A qualifying life event is an event defined by the IRS in Section 125 that allows you to change your FSA election. The following are QLEs:

  • A change in material status, such as marriage, divorce, or death of your spouse
  • A change in the number of your dependents, such as a birth or adoption of a child, or a death of a dependent
  • A change in employment status for you, your spouse, or dependent that affects eligibility
  • An event that causes your dependent to satisfy or cease to satisfy an eligibility requirement (i.e. dependent turning 14 years old or 26 years old)
  • A change in residence for you, your spouse, or dependent
  • A change in cost or coverage

Note: A dependent is anyone you claim on your federal income tax return or someone with whom you jointly file a federal income tax return.

If you or your dependents experience a QLE, you are eligible to change your FSA election. You have 60 days from the QLE to notify your Human Resource Department. Your Human Resource Department then has 30 days to notify HR Simplified.  From there we will make the appropriate adjustments to your payroll deduction.

How do I increase my annual contribution to my FSA?

Per IRS regulations, you are only eligible to change your annual election during an open enrollment period. Once the plan year has started, you cannot change your annual election unless you have experience a Qualifying Life Event (QLE).  Information on QLE’s is listed above.

How do I view my FSA account?

You will have online access to your account through the Employee Pre-Tax Portal. You will receive a welcome letter with your debit card.  Go to the homepage and locate the “Login” button at the top of the page on the right.  This will take you to the Employee Portal where you will set up your personal account.

You will be able to view your account balance, upload claims, view claim status, set up direct deposit, report a lost or stolen debit card, or update demographic information.

These features are available through the mobile application at no additional fee. Download the HR Simplified app for free on your iPhone or Android and have access to your account on the go.

How do I authorize my spouse and/or another individual to obtain information about my account?

According to HIPAA regulations, HR Simplified cannot disclose your personal health information (PHI) to any unauthorized representatives.

Please complete the Release of Information Form that is located in the participant portal under the Resource tab.  Once this form is completed to its entirety, the individual will have authorization to discuss account details.  Should the account holder want to have the authorized individuals denied access to their account in the future, the account holder would need to send a request in writing to HR Simplified with their signature.

Will I get a debit card?

Yes, upon enrollment you will receive a MyPreTax Debit Card at no additional fee. Allow 7-10 business days from your enrollment to receive the debit card in the mail.

Please confirm your employer has your up to date address as the debit card will not be forwarded to a differed address.

Can I get a debit card for my spouse or dependent?

Yes, you can request an additional debit card at no additional fee for your spouse or dependent 18 years of age or older. Please contact HR Simplified at 888-318-7472 to request additional debit cards.

Allow 7-10 business days from your request to receive the debit card in the mail.

How do I report a lost or stolen debit card?

Please contact HR Simplified at 888-318-7472 to report a lost or stolen debit card.  HR Simplified will update your account and send you a new card at no additional fee.

Allow 7-10 business days from your request to receive the debit card in the mail.

Can I use debit card to pay expenses from my previous plan year?

No, per IRS regulations you can only use your current FSA funds for expenses that are incurred during the current plan year. Check with your employer for the group’s current plan design. You may have a grace period, run out, and/or carryover offered with your FSA plan.  Definitions are listed above.

Where can I use my debit card?

MyPreTax Debit Card will work for FSA expenses at health care related merchants such as hospitals and vision, dental, and doctor’s offices. In addition to these locations, the FSA debit card can be used at drugstores, pharmacies, and grocery stores that have implemented the IIAS (Inventory Information Approval System) or certified 90% of their gross sales are FSA eligible.

Save your itemized receipts, bills, or statements any time the debit card is used.

The debit card may also be used at day care providers that accept credit cards and have a valid merchant category code signifying they are a day care provider. The debit card may not be used if you pre-pay day care expenses since the IRS requires the expense must be incurred before reimbursement can be made from your dependent care spending account.

Can I purchase 'Over the Counter' items with my debit card?

Effective 01/01/2011, the IRS approved regulations stating that over the counter items will need a prescription to be FSA eligible expenses.

HR Simplified advises you purchase the over the counter items and submit a manual claim via the Pre-Tax Employee Portal and/or mobile application with your receipts and a prescription from a medical provider for reimbursement.

Why do I need to substantiate a claim from a debit card transaction?

Per IRS regulations, documentation may be requested to verify the purchase is a FSA eligible expense. Substantiation is generally not needed when the transaction is one of the following:

  • A co-payment tied to your health plan.
  • Made at a merchant that utilizes the Inventory Information Approval System (IIAS).
  • A recurring expense that matches the provider and dollar amount from a previously substantiated claim.

I received a letter requesting documentation, what does this mean?

Per IRS regulations, documentation may be requested to verify the purchase is a FSA eligible expense. The following information is what HR Simplified will need to reimburse your transaction:

  • Date of service – to make sure it falls within the appropriate plan year
  • Type of service – to make sure it is a FSA eligible expense
  • Amount

If the transaction is for a co-payment, please write on the receipt “co-payment” as it is not always noted on the receipts.

Unacceptable forms of documentation include:

  • Provider statements that only indicate the amount paid, balance forward or previous balance
  • Credit card receipts that only reflect a payment
  • Bills for prepaid eligible expenses where services have not yet occurred

How can I submit a claim?

Claims can be submitted via email, uploaded through the participant portal and/or mobile application, mail, or fax.

Toll Free: 1-888-318-7472 Toll Free Fax: 1-877-723-0146

Pre-Tax Accounts: fsa@hrsimplified.com

Download the HR Simplified mobile app for free at the app store

I used my FSA funds when my insurance covered the expenses, how do I get my money back?

HR Simplified encourages participants to wait to pay their provider until they know what their insurance will cover. For example, at the dentist, you will receive an estimated total of a bill before insurance is processed.  Wait until insurance is processed before your use your FSA funds.  If you over pay a provider, you will have to work directly with your insurance company to have your FSA funds returned to you.

HR Simplified recommends you keep all of your receipts should we request documentation or should your insurance cover more than what was estimated.

What if I have a recurring expense?

Should you have a recurring expense such as a prescription, we will only reach out for documentation once. The following information we will request:

  • Date of service – to make sure it falls within the appropriate plan year
  • Type of service – to make sure it is a FSA eligible expense
  • Amount
  • Provider/Merchant
  • “Recurring Expense” written on the documentation

Should the documentation clearly state this will be a “recurring expense” we will not reach out for additional documentation days, weeks, or months following for that current plan year.

Note: The debit card transaction will only work if the information listed above is the exact same every month.  For example, if the amount changes from month to month, we will ask for additional documentation.  The information must stay the same every month for us to not request additional documentation.

How long does it take to process claims?

Claims are processed daily and reimbursement of funds will be processed within two business days.

Is direct deposit available? Can I get a check instead?

Yes, direct deposit is available at no additional fee. Log onto your account and sign into your Pre-Tax Employee Portal to set up your banking information.

If direct deposit is not set up, you will receive a check within 3-5 business days after the claim has been processed.

Whose expenses can I claim under my reimbursement account?

  • Yourself
  • Spouse
  • Qualifying child
  • Qualifying relative

Special rules allow a dependent to be eligible for the FSA plan even when that dependent does not qualify to be claimed as your tax dependent on your tax return. HR Simplified recommends that you check with your tax advisor before you make your FSA election for the plan year.

Still have questions?

Contact our sales team