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Tax-Advantaged Financial Savings Account: Details on FSA and HSA Plans

February 9th, 2018

Financial Savings Account

Considering a Financial Savings Account such as a Health Savings Account (HSA) and/or a Flexible Spending Account (FSA), but unsure of the difference or how to take advantage of the benefit?

“Savings Account” seems direct enough but the truth is that while both offer employees a way to set aside a portion of pre-taxed earnings to pay for qualified expenses, they also come with specific requirements.

Health Savings Accounts

HSAs are offered by most health insurance providers through qualified High-Deductible Health Plans (HDHP).

Contributions are pre-taxed, with the amount determined by the employee, as long as it doesn’t exceed government-mandated maximums. For 2018, the IRS max election for an individual is $3,450 and for a covered family is $6,900.

HSA programs are employee sponsored, meaning once the employee makes their election, the funds are accumulated through employee payroll deductions and only funds accumulated are available for use. Funds can be used for qualified medical expenses including copays, coinsurance, prescriptions, deductibles, dental, orthodontia, and vision.

Often, a Third Party Administrator (TPA) provides participants with a debit card to use at the time of the transaction.

Unused HSA elected dollars rollover year to year. There is no cap on rollover:

  • As long as the member is enrolled in a qualified HSA HDHP plan, they can contribute to their HSA account
  • Should a member move to a different plan (non-qualified) they can take their HSA funds with them, but can no longer contribute to the account

Flexible Spending Account

Similar to the HSA, the FSA offers employees a pre-taxed savings option. The biggest difference is that most FSAs are prefunded, so the employee can access the money on day one. The 2018 IRS contribution maximum election amount is $2,650.

Unlike HSAs, the FSA is an employer-sponsored account. The employee makes their election and the employer funds the account. FSAs can be used in conjunction with any medical plan (HMO, PPO, EPO, etc.). Although if the member has a qualified High Deductible Health Plan (HDHP) and enrolls in an HSA, only a “Limited Purpose” FSA is available (will not cover medical expenses).

With the FSA option, elected funds are available on day one of the plan year, meaning an employee can use full election and will continue to pay back the company through payroll deductions. Qualified medical expenses include copays, coinsurance, prescriptions, deductibles, dental, orthodontia, and vision. A Third Party Administrator (TPA) provides participants with a debit card to use at the time of the transaction.

New program feature, FSAs now provide provisions for “leftover” funds at end of plan year:

  • Including a 2.5 month grace period at end of plan year or rollover of up to $500 of unused election
  • Anything outside of the grace period or above the rollover is “lost”

Two additional plans fall under the FSA umbrella and are also pre-taxed contributions.

Dependent Care Account (DCA)

For 2018, the IRS max election is $5,000. Married spouses can each elect a DCA, but their total combined elections cannot exceed $5,000. The person/persons whom the dependent care funds are spent must be claimed as a dependent on the employee’s federal tax return.

The key difference here is that dependent care FSAs are not pre-funded. Employees are reimbursed up to the amount they have had deducted during that plan year and can be used for reimbursement for:

  • Childcare for children under 13 or children of any age who are physically or mentally incapable of self-care
  • Adults care for senior citizen dependents who live with the person

Transit Account

These pre-taxed contributions may be used towards public transit, including train, subway, bus, ferry or vanpool. The limit for 2018 is $260 a month.

Brown & Brown works with many TPAs to provide Financial Savings Account benefits and more to our clients. Our knowledgeable Employee Benefits team focuses on all components that impact your Benefits program from strategic planning to financial and compliance management, employee advocacy and more.

If you have additional questions regarding a Financial Savings Account and enrolling in a Health Savings or Flexible Savings Account, contact Chris Bartlett.

Chris Bartlett

Vice President, Benefits Sales Manager

As Manager of the Employee Benefits department at Brown & Brown Insurance Services of California, Chris strives to maintain the highest integrity while providing the strategic, value added services and ideas for clients.

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