A flexible spending account (FSA) is a type of savings account offered by an employer that provides the account holder with specific tax advantages. The account allows you to contribute a portion of your regular earnings before tax. Distributions from the account are used to reimburse the employee for qualified expenses related to medical and dental services.
One of the key benefits of a flexible spending account is that the funds contributed to the account are deducted from your earnings before taxes, lowering your taxable income. As a result, regular contributions to an FSA can reduce your annual tax liability.
2023 FSA Contribution Limits
The IRS has increased the Flexible Spending Account contribution limits for the Health Care Flexible Spending Account (HCFSA) and the Limited Expense Health Care FSA (LEX HFSA). For 2023, participants may contribute up to an annual maximum of $3,050 for an HCFSA or LEX HCFSA.
The Health Care FSA allows you to carry over up to $610.00 to the next year if you have a remaining balance at the end of the year, and if you re-enroll in FSAFEDS during Open Season. The Dependent Care FSA doesn’t allow you to carry over funds from one year to the next, but this FSA does have a grace period.
The Dependent Care FSA maximum annual contribution limit did not change for 2023. It remains at $5,000 per household or $2,500 if married, filing separately.
The minimum annual election for each FSA remains unchanged at $100.
FSAs for Federal Employees (FSAFEDS)
Federal employees are eligible to participate in the Federal Flexible Spending Account Program (FSAFEDS). The program offers opportunities to use the account for health care expenses not covered by the Federal Employee Health Benefits (FEHB) Plan and the Federal Employees Dental and Vision Insurance Program.
FSAFEDS also offers an account for Dependent Care. This Dependent Care FSA can be used for children or elder care expenses.
How Much Should You Contribute to an FSA?
Having a hard time deciding how much money to put into your FSA? You may want to err on the side of contributing less, not more. Forfeiting FSA funds essentially means throwing money away, and that’s something you don’t want to do.
A drawback of FSAs is that if you retire or leave your job, you’ll need to use up your funds by your last day of employment or generally risk losing them. Unlike 401(k)s, which allow you to roll your money into a new retirement plan, FSA funds cannot be rolled over.
There’s a maximum contribution limit for individuals each year, and most of the money must be spent in the calendar year it’s saved, so FSAFEDS account holders need to carefully plan their contribution amounts to avoid losing unused funds. There is no specific correct amount for everyone, and FSAFEDS elections vary depending on each individual’s particular situation. Make your elections by carefully examining your expected out-of-pocket healthcare expenses for the coming year.
You may want to reexamine the benefits associated with FSAFEDS since your new employee orientation. A new unmarried employee’s circumstances probably may not make her or him a good candidate for the program. Then marriage happens, followed by children.
The good news is FSAFEDS has designed a great online experience to reintroduce you to all the moving parts of the program. The website consists of modules, calculators, presentations, forms, and other resources to explore FSAFEDS when your healthcare needs have changed.
Here are the main components of the FSAFEDS website:
- Home Page
- Frequently Asked Questions
- Message Board
- Enrolling in FSAFEDS
- New Hires
- Qualifying Life Events
- Open Season
- Filing a Claim
- Video on Filing by Mail, FAX, Online or App
- Receipt Requirements
- FSAFEDS Support Center
- Registering an Online Account
- Eligible Expenses
- Worksheets, Tips
- Reimbursement and Pay Options
- FSAFEDS App