5 Questions When Choosing to Offer an FSA

June 6, 2019

About half of all Americans are stressed about their financial challenges, and it’s no surprise that financial stress impacts their work lives. To help alleviate their financial concerns, many employers offer Flexible Spending Accounts (FSAs) as part of their employee benefits package. That’s because FSAs let employees set aside pre-tax dollars to cover a variety of eligible expenses, including medical, dental, vision, prescription and dependent care expenses. And you save on FICA taxes when they participate!

Here are five questions you’ll want to ask yourself and get answers to when deciding if you’re going to offer Flexible Spending Accounts.

What type(s) of FSAs are you going to offer?

Choosing which types of accounts to offer your employees may depend on a number of factors, including your company’s health coverage and your employees’ needs. The four common types are Medical FSAs, Limited Medical FSAs, Combination Medical FSAs and Dependent Care FSAs. Learn more about each type and the expenses they cover from this short video. 

Will your FSA include a carryover or grace period?

The IRS’ use-or-lose rule applies to FSAs, which means your employees could lose unused funds at the end of a plan year. You do have options to give them more flexibility for spending their funds and filing claims, including:

  • A grace period, which extends the plan year by up to two and a half months so your employees have more time to incur expenses.
  • A carryover, which lets your employees carry over a certain amount of their account funds (the IRS allows up to $500) from one plan year to the next.

Will it include a run-out period?

Run-out periods also give your employees flexibility to spend their funds. While a run-out period won’t let your employees incur additional claims after your plan year, it does give them more time to submit claims for any purchases they made during the plan year. Common run-out designs are 30, 60 or 90 days. (And any plan design that includes a grace period must include a run-out period.)

Are you going to offer a debit card?

The IRS requires substantiation for claims, to prove that an eligible expense was purchased with the funds. When offering an FSA, you determine whether your employees receive benefits debit cards, which can simplify the substantiation process. For example, when used at a merchant with an Inventory Information Approval System (IIAS), the Discovery Benefits debit card will automatically substantiate any purchase that’s an eligible expense.

What is the annual maximum contribution?

The IRS sets annual contribution limits, but you still determine whether or not your employees can contribute up to the IRS maximum to their accounts.

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