Both employees and employers tend to really like flexible spending accounts (FSAs). Employees get to pay for a variety of medical expenses with pretax dollars, and employers get more control over an FSA than they would have with a health savings account (HSA).
But while FSAs are popular, it can be hard to keep track of the numerous eligible expenses for flexible spending accounts — and chances are your employees aren’t getting the most out of their FSAs. Here’s a refresher on how these accounts work and six creative ways to take advantage of them.
What Is a Flexible Spending Account?
The IRS has outlined rules for FSAs, including that eligible employees can decide how much they want to contribute to their FSA up to the limit established by the IRS. However, this decision has to be made before the plan year starts — usually during open enrollment — and can only be changed during the plan year if the employee experiences a qualifying event. In 2019, employees can contribute up to $2,700 to an FSA.
Although employees contribute to their FSAs throughout the year in the form of payroll deductions, they can use the full amount they’ve opted to contribute on day one of the plan year. Employers can also contribute to their employees’ FSAs — but note that while technically the IRS doesn’t limit employer contributions, in order to retain excepted benefit status for the FSA under the Affordable Care Act, the employer’s annual contribution can’t exceed a match of the employee’s contribution or $500, whichever is greater.
FSAs do carry a “use it or lose it” provision, so employees generally need to exhaust their FSA funds by the end of the plan year or forfeit their money. But you can create some leeway by offering a carryover or grace period option. According to the IRS, employees with the ability to carry funds over can shift up to $500 from one plan year to the next, while a grace period allows employees an extra 2.5 months after the end of the plan year to use up any remaining FSA funds.
6 Unexpected Ways to Use FSA Funds
Your employees probably know they can use their FSA funds to cover their health insurance deductible, copays and coinsurance. But there are plenty of other services and products — many of which are not covered by health insurance at all — that can be purchased with pretax dollars through an FSA. Some of them might be less obvious choices for FSA eligibility, but being aware of them is a key part of understanding how to use an FSA.
- Fun in the sun. As the weather heats up, employees may begin planning their summer vacations. Some of the supplies they may be buying anyway are FSA eligible. This includes staples like sunscreen and lip balm (as long as it’s SPF 15 or higher), acupressure bands to alleviate motion sickness (though motion sickness medication, such as Dramamine, can only be purchased with FSA funds if a doctor writes a prescription) and prescription sunglasses. Or, if they want to ditch prescription glasses altogether, LASIK surgery is also an FSA-eligible expense.
- Growing the family. If an employee is considering having a baby, they’re probably well aware that baby-related expenses will stack up quickly. The good news is that some of these expenses can be reimbursed from their FSA. That includes obvious medical expenses during pregnancy and delivery, but it also covers things like ovulation predictor kits, pregnancy tests, belly bands, compression stockings, nursing supplies such as nursing pads and breast pumps, baby thermometers, nasal aspirators and even potty training pants (although diapers cannot be purchased with FSA funds).
- Incontinence care. If an employee or dependent is dealing with general incontinence, FSA funds can step in to pay for supplies like incontinence pads and underwear, as well as underpads. Even notoriously expensive instruments such as bed-wetting alarms and bladder monitors are eligible.
- Medical travel expenses. Traveling to and from medical appointments can be time consuming and stressful. An FSA can’t change that, but it can at least offset some of the expense. If an employee or dependent needs to purchase a ticket to travel to a medically necessary appointment, they can use FSA funds to cover the cost. If they drive to the appointment, they can use FSA funds to reimburse themselves 20 cents per mile in 2019. (Speaking of cars, if a doctor certifies that a car must be modified to accommodate a medical condition, the modifications can be paid for with FSA funds.) If the trip extends overnight, lodging expenses up to $50 per night per person (including traveling companions) can be reimbursed from an FSA. To be FSA eligible, though, the lodging needs to be medically necessary and primarily for the purpose of medical treatment. In other words, it can’t be a vacation that contains some medical treatment; the lodging also can’t be “lavish or extravagant” in nature.
- Foot care. A variety of foot care supplies can be purchased with FSA funds. This ranges from corn/callus/bunion cushions to insoles and orthotic inserts, arch supports and devices like foot rollers and circulation promoters. Medicated products such as antifungal sprays are FSA eligible if the employee obtains a prescription from a doctor. As a general rule, over-the-counter treatments containing medication are only FSA eligible with a prescription.
- First aid. While every office should keep a first-aid kit on-site, it’s just as important for employees to have their own personal kits. Luckily, they can build an excellent one using FSA funds. As noted above, medications — pharmaceutical pain relievers, antibiotic ointment and so on — are only eligible with a prescription, but there’s a wide range of other first-aid supplies that don’t require one. Employees should look to FSA funds to help them gather bandages, braces, slings, hot or cold packs, gauze and thermometers, among other first-aid items. If they don’t want to hunt down individual supplies, they can purchase a prestocked first-aid kit instead of assembling their own. These can range from modest kits that might be kept in a diaper bag to high-end first-aid kits that include extensive supplies.
You work hard to ensure a competitive benefits package, and helping your employees understand what counts as eligible expenses for flexible spending accounts is an important part of seeing to it that they’re making good use of the benefits you provide to maintain their health. Your employees will be better equipped to plan their FSA contribution amounts for the coming year and to use their FSA funds by the end of the plan year. They might just find that a medical expense they thought was out of their reach is surprisingly accessible.
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