Flexible Spending Account
Highlights of the FSA Program (FSAFEDS)
What is a Flexible Spending Account?
A Flexible Spending Account is an employee benefit that allows you to set aside money, on a pre-tax basis, for certain kinds of common expenses. With an FSA, you can reduce your taxes while paying for services you'd have to pay for anyway.
- The Health Care Flexible Spending Account (HCFSA) - for health care expenses not paid by FEHB or any other insurance.
- The Dependent Care Flexible Spending Account (DCFSA) - for dependent care expenses that allow you (and your spouse, if married) to work or look for work, or that allow your spouse to attend school full-time.
How does an FSA work?
First, you'll need to determine how much money to allot on an annual basis and make your election(s) with SHPS. You can choose an amount from $250 to $5,000 in 2012.
Second, FSAFEDS requests your payroll office to deduct equal installments of the annual allotment you elect. FSAFEDS then receives your elected amount for deposit into your appropriate account(s).
Third, when you incur an eligible expense, you'll pay for it out of pocket, and then submit a claim for reimbursement to FSAFEDS. All claims must be accompanied by the appropriate documentation, such as an itemized receipt or an explanation of benefits.
Finally, FSAFEDS processes claims and issues reimbursement, often within a few working days. You have the option for direct deposit of reimbursement funds into a checking or savings account through Electronic Funds Transfer (EFT).
How can an FSA help eligible Federal employees save on taxes?
An FSA lets you set money aside for eligible expenses before your agency payroll deducts taxes from your paycheck. This means the amount of income that your taxes are based on will be lower, so your tax liability will also be lower. Here's an example:
|Annual Savings Example*
||With Reimbursement Account
||Without Reimbursement Account
|Pre-tax contribution to reimbursement account
|Federal income and Social Security taxes
|After-tax dollars spent on eligible expenses
|Tax savings with the reimbursement account
* This example is intended to demonstrate a typical tax savings based on 28% federal and 7.65% FICA taxes. Actual savings will vary based on your individual tax situation. Please consult a tax professional for more information on tax implications of an FSA.
What expenses are covered?
Health Care FSA - eligible expenses for you, your spouse, and anyone you claim as a dependent on your federal income tax return.
Dependent Care FSA - eligible expenses that allow you and your spouse to work, look for work, or attend school full-time. Eligible dependents include:
- Dependent children under age 13 and/or
- A person of any age whom you claim as a dependent on your federal income tax return and who is mentally or physically incapable of caring for himself or herself.
Eligible expenses are defined by OPM based on IRS regulations for FSA programs.
You can draw upon your FSA for reimbursement as you incur eligible expenses - it's there when you need it.
Employees will have the opportunity to enroll online during Open Season.
Flexible Spending Account Brochure (500KB PDF)