Federal Law Allows for More FSA Flexibility

What Is an FSA?

In case your employer presents an FSA, you possibly can select to enroll and fund the account with pretax {dollars}. You possibly can then use the funds for eligible bills with out having to pay taxes on the withdrawals. Be mindful, FSAs will not be the identical as well being financial savings accounts (HSAs), which are not tied to your employer.

There are various kinds of FSAs; your employer might provide a number of of those choices:

• Well being FSA: Well being FSAs help you use the funds for quite a lot of well being care-related bills, together with deductibles, copayments, medical gear and medicines.
• Restricted-purpose FSA (LPFSA): You possibly can solely use LPFSA funds for a slim record of eligible vision- and dental-related medical bills. Nevertheless, their restricted use additionally means you possibly can have an LPFSA and in addition a well being financial savings account (HSA), which is not an possibility with a basic well being FSA.
• Dependent care FSA (DCFSA): Additionally known as dependent care help plans (DCAPs), you need to use DCFSA funds for bills associated to caring for certified dependents, akin to youngster care or elder day care prices.

Your FSA’s “plan 12 months” might align with the calendar 12 months, or your employer might select a unique plan 12 months, akin to one which aligns with its medical insurance plan 12 months or its fiscal 12 months. The timing could be essential as a result of, just like signing up for a well being care plan, there is a restricted open enrollment interval if you select your FSA contribution quantity for the next 12 months.

Sure life occasions might qualify you for a particular enrollment interval, together with marriage, divorce, having a toddler or beginning a brand new job with an employer that gives an FSA. However typically, you possibly can’t change your contribution quantity till your subsequent enrollment interval.

FSA accounts even have annual contribution limits and a “use it or lose it” provision. Funds which are left within the account on the finish of the plan’s 12 months could also be forfeited. With well being care FSAs, nonetheless, your employer can help you roll over as much as $550 to the subsequent 12 months or provide you with a 2½-month grace interval to make use of the remaining funds.

Non permanent FSA Adjustments Provide Extra Choices

The Consolidated Appropriations Act, 2021 was signed into regulation in December 2020. The $2.3 trillion spending bundle consists of many provisions, together with $900 billion in coronavirus stimulus reduction and momentary adjustments for FSAs.

The regulation permits however doesn’t require firms to make these adjustments to the FSA plans they provide staff. In consequence, your organization should be working beneath some, or all, of the usual guidelines outlined above.

The non-compulsory adjustments within the new regulation embody:

• No limits to carrying over funds: Fairly than being restricted to carrying over as much as $550 from one 12 months to the subsequent, you could possibly carry over limitless funds from plan 12 months 2020 to 2021—and from plan 12 months 2021 to 2022. The carryover possibility additionally applies to DCFSAs, which normally do not enable any quantity to be carried over.
• As much as 12-month grace interval: For FSAs whose plan years finish in 2020 or 2021, you could possibly obtain as much as a 12-month grace interval to make use of your contributed funds.
• Change contributions throughout the 12 months: For FSAs whose plan 12 months ends in 2021, you possibly can change your contribution quantity at any time, even when you have not skilled a qualifying life occasion.
• Entry funds even when you’re not an worker: Usually, you possibly can lose FSA funds when you depart your job or are laid off. There could also be a grace interval or extension when you join COBRA protection. Moreover, staff who stopped collaborating in an FSA in 2020 or 2021 can now be given till the top of the plan 12 months plus a grace interval to spend down the account.
• DCFSA youngster age limits prolonged: For those who enrolled in a DCFPA earlier than January 31, 2020, and your qualifying youngster turned 13 throughout the plan 12 months, you possibly can proceed to make use of the DCFSA till they flip 14 or the 2021 plan 12 months ends.