A flexible spending account, or FSA, is set up by an employer to help employees pay for out-of-pocket expenses, such as healthcare and dependent care expenses.
Each month, employees are able to contribute a portion of pre-tax money to the account, and employers can also contribute. A flexible spending account is a great way to enhance your employee benefits package and attract top talent.
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How to Set Up a Flexible Spending Account:
1. Establish FSA eligible expenses.
Before you set up a flexible spending account, consider drafting an FSA policy to determine how your company will verify eligible expenses if an employee decides to withdraw from the account.
2. Hire a neutral administrator.
Select a third-party administrator to help set up a flexible spending account on your behalf. You can do it yourself, but this would take a lot of time and effort to plan - a luxury that most business owners do not have. You also want to ensure that your employees' personal information remains private so that there is no room for conflict between management and staff.
3. Keep track of contributions.
Make sure that your company is able to accurately record each employee's individual account as claims are submitted, paid, or rejected.
4. Explain the plan to your employees.
When you onboard new employees, you should have an FSA document that outlines the plan for them and explains how they can participate.
Why We Chose WageWorks:
WageWorks is a Consumer-Directed Benefits company, meaning they supply a range of employee benefits on one platform. It is an easy to use, integrated solution.
WageWorks offers the $500.00 carryover provision which allows them to interpret and adjust to future policies and to adjust your program as your company evolves. It is a configurable plan that adapts to your program and needs and to any regulatory changes.
With WageWorks' tools and apps, employees can use any device to check their balances, pay their providers, and submit claims. WageWorks also allows your employees to choose from a variety of payment options.
Things to Consider When Evaluating Flexible Spending Account Providers:
- Determine whether you want to choose a rollover plan or a "use-or-lose" plan.
- Think about the kind of expenses that you want your employees to be able to claim, and then investigate all limits, expenses, and hidden fees that the provider offers.
- Consider the integrations available for keeping track of your employees' contributions.
Best Flexible Spending Account Providers:
Features a variety of payment options, a mobile app, and an in-depth resource and support center. Uses the rollover option.
Offers a variety of FSA plans with the rollover option of $500.00. Integrates with Payflex for an auto pay process, but orthodontia and vision claims do not use auto pay.
Offers 3 types of FSA plans as well as educational tools.
A good payroll solution with strong features, but does not have an activity dashboard or an employee database.
Offers a variety of plans, a mobile app, and employee education. Requires a number of documents when filing a claim online.
Does not offer a lot of information. Reviews suggest that customers do not fully understand the product.
Offers online and mobile access and a rollover plan, as well as a good resource and support center. Does not pay your healthcare service provider directly.
Offers an HSA for Life Health Savings Account but does not sponsor or maintain any FSA or Health Reimbursement Arangements you may set up.
Account includes an Optum Bank Mastercard to pay for eligible expenses without submitting paper claims. Uses the "use-it-or-lose-it" rule.
Offers 3 reimbursement options and employee communications and claims tracking. Also offers tracking and loading of employee payroll deductions to the FSA.
What items are eligible for FSA?
The FSA Eligibility list is a long list of medical products and services deemed eligible for reimbursement by the IRS. Publication 502 (2018) explains which medical and dental expenses generally qualify for reimbursement.
Is a flexible spending account worth it?
A flexible spending account (FSA) is a valuable resource to help employees pay for out-of-pocket medical and dental expenses for themselves and their dependents. A flexible spending account is a great way to enhance your employee benefits package and attract top talent.
Is FSA money available immediately?
Yes, flexible spending account (FSA) funds are available on the first day of the year plan.
What is a flexible spending account and how does it work?
The definition of a flexible spending account is: "a tax-advantaged financial account that allows you to save on payroll tax and pay for healthcare and dependent expenses." An FSA is also known as a spending arrangement, health care flexible spending account, and a dependent care flexible spending account.
A health care FSA allows you to pay for qualified healthcare or dependent care expenses not covered by other health plans. If an employee needs to make a deduction from their health savings account, they can use a debit or credit card and submit their receipts for reimbursement. FSA funds are available immediately. Every year, the IRS sets a limit on how much an employee can contribute. For 2019, the FSA limit is $2,700.
Which is better: FSA or HSA?
Both an FSA and Health Savings Account (HSA) are tax-advantaged accounts, but there are key differences between the two. FSAs can only be opened by an employer and contributions are made via pre-tax deductions. With an HSA, contributions can only be made if an employee is covered by a high deductible health plan.
An HSA is more flexible and allows you to save money. The FSA has no long-term savings potential but does provide tax savings.
Do I have to provide a flexible spending account?
There are no laws that require you to offer a flexible spending account but many companies do provide FSAs as a benefit.
Can you carry over FSA money?
Under the "use-or-lose" plan, employees must use funds from their healthcare savings account by the end of the year or forfeit the entire amount. Employers can choose to offer a flexible spending account rollover, which allows an employee to carry over up to $500.00 for the following plan year.