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Flexible Spending Accounts (FSA)

Posted on Sunday, 21st July 2019 by

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I would like to welcome Shawn McCoy, President and Founder of Federal Employee Benefits Advocates, LLC (FEBA) an educational and training company, to our guest forum.  Mr. McCoy is an expert on Federal employee benefits and has spoken to over 19,000 Federal employees over the last 10 years.  This is his first of many artilces to come for our Retirement Plannng Blog. For more details about the training programs offered by FEBA check their website. They offer retirement benefit seminars nationwide.
 
With the Federal Open Season for benefit selection coming up in a few months this is a great time to review a benefit that is not widely used by Federal employees, the Federal Flexible Spending Account Program (FSAFEDS).
 
The first question most Federal employees ask is “What is the Federal Flexible Spending Account Program (FSAFEDS)?”
 
FSAFEDS allows you to save money for health care expenses with a Health Care or Limited Expense Health Care FSA. Think of it as a savings account that helps you pay for items that typically aren’t covered by your FEHB Plan, the Federal Employees Dental and Vision Insurance Program, or other health insurance coverage. Things like deductibles, out of pocket expenses, and other expenses that may not be cover by the medical coverage (FEHB) and Dental or Vision (FEDVIP)
 
FSAFEDS also offers an account for families with young children or elder care expenses – the Dependent Care FSA. This account allows you to set aside money to pay for your day care expenses.
 
Eligible employees can enroll in FSAFEDS each year during the FEHB Open Season, November 11th to December 9h, 2019. Contributions are made directly from bi-weekly pay on a pre-tax basis into the FSA. New and newly eligible employees who wish to enroll in this program must do so within 60 days after they become eligible, but before October 1 of the calendar year. Retirees are not eligible to participate in the FSA program.
 
The next question is “How does it work?”
 
There are three different Flexible Spending Accounts plans available:
 
Health Care FSA (HCFSA)
 
With a Health Care FSA, you use pre-tax dollars to pay for qualified out-of-pocket Health Care expenses. The money you contribute to a Health Care FSA is not subject to payroll taxes, so you end up paying less in taxes and taking home more of your paycheck. Used to pay for:
 
  • Eligible medical, dental, and vision care expenses not covered by the plans
  • Co-pays, co-insurance, and deductibles
  • Professional services: physical therapy, chiropractor, and acupuncture
  • Prescription drugs, insulin, and prescribed over-the-counter medicine
  • Over-the-counter health care items: bandages, pregnancy test kits, blood pressure monitors, etc.
Specifics
  • Can contribute up to a maximum of $2,700 (2019)
  • Access the full amount of your account on day one of the plan year
  • Can carry over up to $500 from one plan year to the next (You must sign up for a least $100 to be deducted for the next plan year)
  • Can be reimbursed by check or direct deposit into checking or savings account
 
Limited Expense Health Care FSA (LEX HCFSA)
 
If you’re enrolled in an HSA-qualified high-deductible health plan and have a Health Savings Account (HSA), you can increase your savings with a Limited Expense Health Care FSA (LEX HCFSA). This pre-tax benefit account helps you save on eligible out-of-pocket dental and vision care expenses while taking advantage of the long-term savings power of an HSA.
 
Specifics
 
  • Can contribute up to a maximum of $2,700 (2019)
  • Used to pay for eligible dental, and vision care expenses not covered by the plans Co-pays, co-insurance, and deductibles, Vision exams, LASIK surgery, contact lenses, and eyeglasses Dental cleanings, X-rays, fillings, crowns, and orthodontia
  • Access the full amount of your account on day one of the plan year
  • Can carry over up to $500 from one plan year to the next (You must sign up for a least $100 to be deducted for the next plan year)
  • Can be reimbursed by check or direct deposit into checking or savings account
 
Dependent Care FSA (DCFSA)
 
A Dependent Care FSA (DCFSA) is a pre-tax benefit account used to pay for eligible dependent care services, such as preschool, summer day camp, before or after school programs, and child or adult daycare. It’s a smart, simple way to save money while taking care of your loved ones so that you can continue to work.
 
With a Dependent Care FSA, you use pre-tax dollars to pay qualified out-of-pocket dependent care expenses for your child who is under age 13.
  • Before and after school care
  • Babysitting and nanny expenses
  • Daycare, nursery school, and preschool
  • Summer day camp
 
Care for your spouse or a relative who is physically or mentally incapable of self-care and lives in your home.
 
  • Can contribute to up to a maximum of $2,500 per year if you are married and file a separate tax return (2019), $5,000 per year if you are married and file a joint tax return or if you file as single or head of household. Both cannot claim $5,000 (2019)
  • When the account has the funds, you can use your balance to pay for eligible expenses
  • Can only use the funds that are available in the account, not the entire election amount
  • Funds must be used by March 15th, 2021 or lose it and claims must be submitted by April 30, 2021
 
As a rule, you can’t change your Health Care FSA (HCFSA), Limited Expense Health Care FSA (LEX HCFSA), or Dependent Care FSA (DCFSA) election amount during a benefit period (the plan year). That’s why it’s important to plan an election that suits your needs for your entire benefit period.
 
But there are circumstances – called Qualifying Life Events (QLEs) – when you can make changes.
 
The final question is “How do I calculate how much to contribute to the FSA?”
 
This question can be a tricky because it depends on the individual, the family, FEHB plan selected and the Dental or Vison plan selected. The amount can vary based on other factors such as the plan copayments, deductibles, out of pocket expenses, prescription drugs and planned medical or dental procedures.
 
A good starting point is to look at your 2 years of uncovered expenses. You can obtain that information from your FEHB and dental and vision insurance plan providers by looking at your Explanation of Benefits (EOBs). These can be obtained go going on the carrier’s website or contacting the carrier directly. Add up the two years’ worth uncovered expenses and subtract out any extraordinary expenses, i.e. broken foot. Then divide by 2. After you get that figure add in any planned expense for procedures you may have for the upcoming year, i.e. Lasik surgery. If you are unsure you can always just contribute $500 for the first year. And since you can carry over up to $500 remaining in either your HCFSA or LEX HCFSA account from one plan year to the next (must re-enroll each year), there’s no reason not to take advantage of the tax savings this year and every year.
 
For more details on eligible expenses or to enroll in the plan go to the Federal Flexible Spending Account Program (FSAFEDS) website at www.fsafeds.com.
 
K. Shawn McCoy is the President and Founder of Federal Employee Benefits Advocates, LLC (FEBA) an educational and training company located in Parker, Colorado. Mr. McCoy is an expert on Federal employee benefits and has spoken to over 19,000 Federal employees over the last 10 years. For more details about the training programs offered by FEBA check their website. www.febadvocates.com
 
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Disclaimer:Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

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