You are here: Home Finances Flexible Spending ... How An FSA Works
Information about all aspects of finances affected by a serious health condition. Includes income sources such as work, investments, and private and government disability programs, and expenses such as medical bills, and how to deal with financial problems.
Information about all aspects of health care from choosing a doctor and treatment, staying safe in a hospital, to end of life care. Includes how to obtain, choose and maximize health insurance policies.
Answers to your practical questions such as how to travel safely despite your health condition, how to avoid getting infected by a pet, and what to say or not say to an insurance company.

Flexible Spending Accounts 101 (FSAs)

How An FSA Works

Next » « Previous


Employees estimate their family's annual health or dependent expenses and enroll each year, electing the amount to be withheld for the coming plan year. Annual enrollment is required even if you would like to maintain the same level of coverage from one year to the next.

Employees contribute pretax funds to the account through a salary reduction agreement.

The funds are not subject to income tax or Social Security tax.

Under the agreement, the amount an employee chooses is deducted evenly from his or her paycheck throughout the year. Once the amount of contribution has been designated during the open enrollment period that occurs once each year, you are not allowed to change the amount or drop out of the plan during the year unless you experience a change of family status described in the plan.

NOTE: FSA's are "pre-funded." The total yearly amount in the account is available to the employee at the beginning of the year - even though the employee has not actually contributed this amount to the plan. If you set aside $2,000 per year in a FSA the entire $2,000 is available for your use immediately - either at the start of the plan year (commonly January 1) or after the first contribution to the FSA is received by the FSA vendor, depending on the plan. This is so even though you only contribute to the FSA in small increments throughout the year such as 1/26th of the annual amount if you are paid biweekly.

If you leave employment before making all contributions to the FSA, employers are left holding the bag for amounts which have been paid, but not contributed.

The annual contribution amount must remain the same during the entire year unless certain events occur, such as the birth of a child or the death of a spouse.

Employers may also contribute to these accounts.

To receive funds from your FSA:

  • You submit to the administrator a claim form with your bills which substantiate that you spent the money on permissible medical expenses which were incurred during a valid time period. You receive reimbursement. Most managers issue payments the same day that a claim is processed.
  • Many employers permit FSA debit cards allow employees to access money in the FSA directly (rather than seek reimbursement.) Debit cards also simplify the substantiation requirement. Many cards work with an inventory information approval system which separates eligible from ineligible items at the point-of-sale. These systems provide automatic debit card substantiation. Debit cards are usually administered by third party administrators (TPAs).
  • Documentation from the provider of services must indicate:
    • Date(s) of service.
    • Description of the service provided.
    • The dollar amount charged for the service.
    • The name of the service provider.
    • The name of the person for whom the services were provided.
  • You will also be required to provide a written statement that the expenses have not been paid or reimbursed under any other health plan coverage.

If you spend money on ineligible expenses: You have to replenish the account for the amount of the ineligible expense or be subjected to a penalty.

Please share how this information is useful to you. 0 Comments


Post a Comment Have something to add to this topic? Contact Us.

Characters remaining:

  • Allowed markup: <a> <i> <b> <em> <u> <s> <strong> <code> <pre> <p>
    All other tags will be stripped.