Flexible Spending Accounts (FSAs), also known as Section 125 plans or cafeteria plans are a popular employee benefit because they allow employees to set aside tax-free dollars for medical, dependent care, and commuter expenses they expect to incur during the year.
An FSA could save 25% or more on eligible expenses. There are four (4) types of accounts that could be offered under a Flexible Spending Account program, each offering unique features and opportunities to save money.
Health Care FSA
Frequently offered alongside traditional co-pay health plans, the Healthcare FSA helps employees pay for expenses not otherwise covered by their insurance. This account provides you with upfront access to your full annual election on the first day of the plan year to help you pay for eligible medical, dental and vision expenses incurred by you, your spouse and dependents.
Limited Purpose FSA
Similar in many ways to the Healthcare FSA, the Limited Purpose FSA only reimburses eligible dental and vision expenses. These accounts are often offered as part of a benefits program that also includes the Health Savings Account (HSA). This is because you cannot have both the HSA and Healthcare FSA, since both reimburse medical expenses. A person may choose to enroll in both the HSA and Limited Purpose FSA to maximize their tax savings on eligible dental and vision expenses.
Dependent Care FSA
Helps many of today's families pay for costs associated with the care of their children. A dependent care FSA offers a better way to manage these expenses and gain real tax savings. This account allows you to direct part of your pay, on a pre-tax basis, throughout the year to reimburse yourself for certain dependent care expenses incurred so that you can work. These expenses commonly include before and after school program, child and elder daycare, summer day camp, and preschool.
Adoption Assistance FSA
Provides those planning on adopting a child a great way to help manage the out-of-pocket expenses incurred during a legal adoption process while also gaining a tax savings. With this account you are able to set aside part of your pay on a pre-tax basis to reimburse yourself for adoption related expenses such as adoption fees, court costs, attorney fees and related travel costs.
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