Because the money is deducted from your paycheck before taxes are calculated, the actual amount of earnings on which you are taxed is lowered. The results? Not only do you avoid taxes on the money taken out, but overall, you may pay less taxes on your earnings.

People who open a Flexible Spending Account are required to decide, in advance, how much they intend to contribute to their FSA. Because of this, Flexible Spending Accounts are recommended only for routine or predictable expenses you normally would pay anyway with after-tax dollars.

Three Types of Accounts
In the past our Flexible Spending Account program had three separate options: a Health Care Account, a Dependent Care Account and a Premium Only Plan.  However, because the City is offering a high deductible health insurance plan (HDHP) along with a Health Savings Account (HSA), as are many of your spouse’s employers, there are three different types of Health Care Reimbursement Accounts available in an effort to provide employees with more options.  Please review your options carefully to ensure that you choose the one that will best apply to you and/or your family.  

Health Care Reimbursement Account choices are: 

Type 1:  Full-Family General Purpose FSA:  Elect a General Purpose FSA if neither you nor your spouse have a Health Savings Account (HSA).  A General Purpose Health Care Reimbursement Account automatically covers you and all of your dependents for reimbursement of out-of-pocket medical, vision and dental expenses.

Type 2:  Partial-Family General Purpose FSA:  Elect a Partial-Family General Purpose FSA where your spouse contributes to a Health Savings Account (HSA).  A Partial-Family General Purpose FSA lets you elect benefits for all members of your family EXCEPT your spouse so that the spouse to continue participating in an HSA.  A Partial-Family General Purpose FSA enables you to pay for out-of-pocket medical, vision and dental expenses for yourself and/or your children, but not for your spouse who is covered by an HSA.  When electing a Partial-Family General Purpose FSA, you may NOT submit expenses for your spouse.

Type 3:  Full-Family Limited Purpose FSA:  Elect a Limited Purpose FSA if you and/or your spouse contributes to a Health Savings Account (HSA).  As permitted by IRS rules, you may use a Limited Purpose FSA to pay for vision, dental and post-deductible medical expenses only and continue to maintain your eligibility to contribute to an HSA.

The Dependent Care Account may be used to pay for dependent care expenses that enable you and your spouse to work. You may claim dependent care expenses for your children under age 13, or for a dependent adult or child over 13 who, for medical reasons, requires day care. Expenses that qualify include the cost of care in licensed day care centers, preschool tuition and care provided in or outside of your home, such as an adult day care facility. The minimum amount you can set aside for the Dependent Care Account is $3 per pay period, up to a limit of $5,000 annually or $2,500 if married and filing separately.

The Premium Only Plan allows employees who are required to pay a portion of their medical or dental insurance premium, to do so on a pre-tax basis. In other words, the portion of the medical or dental insurance premium will be deducted from your pay twice per month pre-tax. This means the amount you pay for the premiums will not be subject to federal and state income tax. As a result, you realize an immediate tax savings.

Participation in the City's medical or dental insurance plan is voluntary. Therefore, you can decline to participate. However, if you elect to participate in the City's medical or dental insurance plan, you automatically will participate in the Premium Only Plan.

How They Work
FSA accounts are ideal for the routine or predictable expenses you normally would pay for with after-tax dollars.

To enroll in a FSA, the first step is to calculate what you expect to pay for health care and/or dependent care. Your contribution then is divided into equal deductions over the year, taken from your earnings BEFORE federal and state taxes and Medicare contributions are deducted. The amount is deposited into your personal account.It’s important not to overestimate this amount because federal tax law requires FSAs operate on a “use it or lose it” basis. This means any funds left in an account at the end of the year will be forfeited. To keep you up-to-date on your account balance, a quarterly statement will be mailed to your home.

When you have expenses that qualify for reimbursement, simply submit a claim form along with the bills or receipts reflecting the expenses incurred. “Paid on account” statements, “balance due” bills, cash register tapes and canceled checks are NOT acceptable documentation. However, a clearly printed cash register receipt IS acceptable documentation (as long as it prints the item name) to support claims for: OTC medications, contact lens solution, hearing aid batteries, chemical strips, and magnifying glasses (with a copy of the prescription/statement from the eye doctor.)