What Are Flexible Spending Accounts (FSAs) and FSA Administration?

With the exponentially growing number of organizations offering Flexible Spending Accounts (FSA), FSA administration has become a common topic in a number of industries. Providing a range of tax advantages for both employers and employees, these plans allow employers to give their staff a more economical way to handle their medical expenses. No matter the size of your organization, you – and your employees – can benefit greatly from implementing a well-managed FSA.

But, what exactly is an FSA? How do they work? And, most importantly, what advantages do they offer? In today’s post, we’re going to take a deeper look at Flexible Spending Accounts.

What types of Flexible Spending Accounts are there?

There are three general types of Flexible Spending Accounts, each for a different purpose.

  • Health Care FSA: This type of FSA is used to pay for eligible, unreimbursed medical expenses.
  • Dependent Care FSA: This FSA is used to pay for child care (or even adult day care) for eligible tax dependents that enable the employee to work.
  • Limited-Purpose FSA: This type of FSA is used in conjunction with a Health Savings Account (HSA), and is used for unreimbursed dental and vision expenses.

What is a Flexible Spending Account?

Employers who don’t currently offer an FSA often wonder how Flexible Spending Accounts work. Flexible Spending Accounts are a way for your employees to utilize tax-exempt earnings to pay for eligible out-of-pocket expenses. By contributing a portion of their earnings each paycheck to an FSA, a fund is created from which certain eligible costs can be paid. These costs include – but aren’t limited to – things like medical copayments, prescriptions, over-the-counter drugs, and deductibles. FSAs can even cover less common expenses like orthopedic shoes, sunscreen, and pregnancy tests in the case of a Health Care FSA

What are the benefits of offering an FSA?

For employers, an FSA offers a way to lower payroll taxes, including those for Medicare and Social Security, currently saving employers 7.65% for every dollar an employee contributes. Your employees are also afforded a level of comfort knowing that they have a tax-free fund (the same savings, plus no federal or state income tax) to address a large portion of their out-of-pocket medical and dependent care costs. Further, by simply adding a Premium Conversion provision to the plan document, employers can save taxes as well on dollars that employees pay towards the cost of health, dental, and vision coverage.

For employees, a Health Care FSA affords them a way to cover a laundry list of common medical expenses, including everyday items like over-the-counter medications, and glasses or contacts. FSA benefits can also be applied to employees’ dependents, providing a cost-effective way to cover their expenses, as well. Additionally, since contributions are funded with pre-tax dollars, an FSA delivers savings by reducing employees’ taxable income.

Further, employees can receive FSA debit cards, making payment for eligible expenses even easier.

How can professional FSA administration help?

At Kushner & Company, we can assist your organization by providing comprehensive, experienced FSA administration. While these accounts are incredibly helpful to employees, they do come with some administrative pitfalls for the uninformed. Compliance and HIPAA violations can result in extremely costly penalties, so it’s important to follow strict procedures when administering your Flexible Spending Account.

So, if you’re looking for a way to ensure the wellbeing of your employees, a Flexible Spending Account is a great option. Whether you’re a small business, a major company, or anything in between, the team at Kushner & Company is here to answer any questions that you may have. We encourage you to reach out to us, learn the benefits that you stand to gain and, more importantly, how we can help you – and your staff – succeed.