A flexible spending account (FSA) is a voluntary, employer-sponsored program for employees to save a portion of their income pre-tax to be used to pay for qualified medical or dependent care expenses incurred during their benefit plan year.
Health FSAs -
The money employees contribute to their Health FSA can be used to reimburse themselves for eligible, out-of-pocket health care expenses made for themselves and/or covered dependents. Accounts are funded through payroll deductions. The maximum annual amount a participant may elect to contribute to their Health FSA (for 2019, as determined by IRS Code section 125(i)) is $2,700. Health FSA offerings include full medical FSA and limited purpose FSA for dental and vision expenses.
Dependent Care FSAs -
A dependent care FSA is set up to reimburse an employee for their eligible dependent care expenses. Eligible expenses include dependent care expenses for children under age 13, a disabled spouse, and/or a disabled relative or household member who depends on the account holder for at least half of his or her support. Accounts are funded through payroll deductions. The IRS limits dependent care maximums to $5,000 per year – $2,500 if the employee is married and filing separately.
Limited Purpose FSAs -
You may have heard that you cannot be enrolled in both a Health Savings Account (HSA) and a Flexible Spending Account (FSA) at the same time; however, there are some scenarios in which the HSA and FSA can work together.
You may pair your HSA with a Limited Purpose FSA, if it is an option provided by your employer. A Limited Purpose FSA is subject to the same rules as a traditional Medical FSA, but it is limited to covering dental and vision expenses only.