Flexible Spending Account
Highlights of the FSA Program (FSAFEDS)
What is a Flexible Spending Account?
A Flexible Spending Account (FSA) 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 Limited Expense Health Care Flexible Spending Account (LEX HCFSA), only available to employees who enroll in a Federal Employees Health Benefits (FEHB) Program under a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA). Eligible expenses are limited to dental and vision care services/products that meet the IRS definition of medical care. By using a LEX HCFSA, you can preserve the funds in your Health Savings Account to use/save for other purposes.
- 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). You can choose an amount from $100 to $2,750 in 2020 for HCFSA or LEX HCFSA and/or $100 to $5,000 in 2020 for DCFSA.
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. Please note that a number of FEHB and FEDVIP plans are now participating in the paperless reimbursement process. This means that when you or your provider file claims with your FEHB or FEDVIP plan, FSAFEDS will automatically reimburse your eligible out-of-pocket expenses based on the claim information it receives from your plan. There is little or no paperwork involved, and in many cases you will receive your reimbursement before your bill is due.
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||($1,500)||0|
|Federal income and Social Security taxes||($9,447)||($9,982)|
|After-tax dollars spent on eligible expenses||0||($1,500)|
|Tax savings with the reimbursement account||$535*|
* 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 (3.5MB PDF)
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