December 1, 2020

What's an FSA

What is an FSA?

A flexible spending account (FSA) is a type of savings account that provides some specific tax advantages that employers can offer as an additional health benefit to their employees. An employee can contribute pre-tax earnings to their FSA to be used toward qualified medical expenses.

Employees must choose how much they’d like to contribute to their FSA during their annual open enrollment period. Unlike an HSA, the contribution amount cannot change without a qualifying life event.

What is the annual contribution limit for an FSA?

The annual contribution limit per employee is $2,750 for 2021. If you’re married, your spouse can also put aside up to $2,750 through their employer. Employers can also contribute to your FSA. If an employer does contribute, their contribution does not count towards your annual contribution limit.

An FSA typically has a “use it or lose it” policy (unlike an HSA). Which means any funds that you contribute to your FSA must be used by the end of the plan year or they will be lost. Employers can elect to have $500 of an employee’s funds rolled over from the previous plan year to the new plan year, but no one likes to see money disappear, so plan accordingly.

What’s a dependent-care FSA?

Another popular type of FSA is a dependent-care flexible spending account. This type of account is similar to the traditional FSA, but can be used specifically for childcare expenses for children under 12. It can also be used for qualifying adults.

What are the annual contribution limits for a dependent-care FSA?

The dependent-care FSA has a different annual contribution limit than the traditional flexible spending account. The 2021 contribution limit for a dependent-care FSA is $5,000 a year for individuals or married couples filing jointly, or $2,500 for a married person filing separately

Disclaimer: Any articles written on this website, including this article, are not to be taken as legal or HR advice. Employment laws are constantly changing and vary by location and industry. You should consult a lawyer or HR expert for guidance. Need HR advice? We can help!

📸 Photo by Brooke Cagle on Unsplash

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