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Flexible Spending Accounts (FSAs) provide state employees the opportunity to set aside pre-tax dollars from each paycheck for reimbursement of qualified medical and/or dependent care expenses. This means you can pay for medical and/or dependent care expenses with tax-free money. Eligible employees can enroll during open enrollment.
The state’s FSA program is set up and administered through Key Benefits Administrators. The state currently offers three FSAs to employees: Medical Care, Limited Purpose and Dependent Care FSAs.
Medical Care and Limited Purpose FSAs are front-loaded accounts in which annual contributions are paid back throughout the year out of the employee’s biweekly paycheck. For 2013, the maximum annual contribution for the Medical Care and Limited Purpose FSAs is $2,500. Both FSAs are designed to allow employees to use pre-tax dollars to cover health care costs for medical, dental, vision, hearing and other out-of-pocket expenses not paid by insurance.
It is important to note that the Limited Purpose FSA may only be used for dental, vision and preventive care expenses until the minimum deductible of a CDHP is met (Federal regulations set the deductible at $1,250 for single and $2,500 for family.). Once the minimum deductible is met, the Limited Purpose FSA can be used as a Medical Care FSA. Participation in a Medical Care FSA disqualifies you from participating in a Health Savings Account (HSA) while Limited Purpose FSA coverage is qualified coverage for those also participating in a HSA.
Dependent Care FSAs differ from other FSAs in that they are not front-loaded. Portions of your biweekly pay is put into a pre-tax account to help pay for eligible dependent care costs throughout the year. Currently, the maximum annual contribution amount for the Dependent Care FSA is $5,000 ($2,500 if you are married and filing separate tax returns).
Dependent care costs include most dependent care expenses for eligible children and adults. To be eligible for a Dependent Care FSA you and your spouse (if married) must be employed or attend school and your dependent must be under the age of 13 or physically and/or mentally incapable of caring for him or herself. Dependent care expenses do not include medical expenses and therefore can be used even if you participate in an HSA.
All FSAs offered by the state have a use-it-or-lose-it rule. Money left at the end of the plan year is not rolled over or reimbursed. You must re-enroll in your FSA each year if you wish to continue to participate. If you decide that an FSA is right for you and your family, it is important to be conservative when allocating the yearly amount. You should only consider known expenses and in the case of the Dependent Care FSA, factor in vacations or times when you will not be paying the dependent care provider. Once you decide your allocation amount, the number can only change if you experience a qualifying event. You may also change your allocation during open enrollment.