What are flexible spending accounts (FSAs)?

FSAs are a benefit, a tax-favored program that allows you to set aside pre-tax money from your paychecks to pay for a variety of expenses.  With an FSA, you can reduce taxes while paying for services you normally have to pay for anyway.  And of course a side effect of reduced taxes is an increase in take-home pay.

Is there more than one type of FSA account? 

Yes, there are two types, as follows:

• Health Care Flexible Spending Account (HCFSA) - for health care expenses not paid by the Federal Employees Health Benefits (FEHB) program or any other insurance, and not claimed on the employee’s federal income tax return.  Benefits may be paid for eligible expenses for the employee, spouse, and anyone claimed as a dependent on the employee’s income tax return.  Examples of eligible expenses include, but are not limited to, co-payments, deductibles, co-insurance, dental care, orthodontic treatment, guide dogs, hearing aids, weight-loss programs at physician’s direction, and laser eye correction. In addition, on 27 Oct 03 OPM announced over-the-counter medicines are reimbursable, such as a regular supply of decongestants, antihistamines, and other frequently used medicines. Items such as dietary supplements or vitamins are not reimbursable because they are "merely beneficial" to "general good health."
• Dependent Care Flexible Spending Account (DCFSA) - for dependent care expenses that allow the employee (and spouse, if married) to work or look for work, or that allow the spouse to attend school full-time.  Expenses can be paid for children under age 13 and for adults who qualify as dependents under IRS regulations.

How do FSAs work?

Participation is voluntary.  If you wish to participate in the HCFSA, the DCFSA, or both, you’ll enroll during open season.  During the enrollment process, you’ll designate the amount you wish to contribute for the year.  This amount will be divided by the number of pay dates in the calendar year, and the resulting sum will be withheld from your salary, before tax, and processed as a bi-weekly allotment by your payroll office, paid directly to the 3^rd party administrator of the FSA program.  You’ll then submit eligible expenses for reimbursement.  In effect, you are reimbursing yourself, on a tax-free basis, and in the long run you’re reducing your taxable income.

Is there a minimum or maximum amount that can be contributed to an FSA account(s)?

Yes, there is. For the HCFSA, you may elect to contribute a minimum of $250 or a maximum of $4,000 per plan year. (This is a change effective with the 10 Nov - 15 Dec 03 Open Season; originally, the maximum HCFSA contribution was $3,000.) For the DCFSA, an annual minimum of $250 or maximum of $5,000 may be elected ($2,500 if married and filing a separate income tax return).

Who is responsible for administering the FSA program?

SHPS, Inc., one of the nation’s largest FSA administrators, has full responsibility for the day-to-day administration of the FSA program which includes enrollment, answering questions during and after open seasons, and providing an education campaign before the open season in Nov/Dec 03.  As a result, we’re providing only the basics of the FSA program.  To obtain in-depth information, please visit the SHPS Web site at www.fsafeds.com, or speak with an SHPS customer service representative by calling toll-free 1-877-372-3337, or TTY 1-800-952-0450.  SHPS customer service representatives are available Monday through Friday, 9 a.m. to 9 pm. Eastern Time.

When are Open Seasons held?

Annual FSA Open Seasons occur each year at the same time as the FEHB open season.  You must re-enroll each year if you wish to participate. 

Who is eligible to participate in the FSA program?

Employees who are eligible for Federal Employee Health Benefits (FEHB) program, even if not currently enrolled, are eligible to elect a Health Care FSA.  All employees with qualified dependents may elect to enroll in the Dependent Care FSA except temporary employees with no fixed work schedule whose tour of duty is six months or less.  At the present time, retirees are not eligible for coverage in either FSA.

Is participation in the FSA program automatic?

No.  If you wish to participate, you must submit an election.  Further, enrollment does not automatically carry over from plan year to plan year -- you must submit an election during each open season if you wish to contribute in the new plan year.

How do I enroll?

Enrollment will be by phone or Web, as set forth below.  Your local Civilian Personnel office and the Benefits and Entitlements Service Team (BEST) are NOT authorized to accept enrollments.

• By Phone:  Call an SHPS customer service representative toll-free at 1-877-372-3337, or TTY 1-800-952-0450.  SHPS customer service representatives are available from 9 a.m. to 9 p.m., Monday through Friday, Eastern Time.
• By the Web:  www.fsafeds.com

Is there any special information I will need to have handy during the enrollment process?

Yes, you’ll need your payroll office identification number.  For DoD and Air Force employees, the payroll office identification number is located on the Leave and Earnings Statement in the Remarks section.

I’m a new employee.  Will I have to wait for the annual open season to enroll in the FSA program?

No.  Newly hired employees may enroll within 60 days of date of hire, or by 1 Oct of the plan year, whichever comes first.  If hired after 1 Oct, you will not be able to participate for that plan year, but may enroll during the Nov/Dec open season for the next plan year.

I just converted from a temporary appointment to a permanent appointment.  When will I be eligible to enroll in the Health Care FSA?

You have 60 days from the date of conversion to the permanent appointment, or until 1 Oct, whichever comes first, to enroll.  If you become eligible to enroll after 1 Oct, you will not be able to participate for that plan year, but may enroll during the Nov/Dec open season for the next plan year. 

If I find I elected too much money for my FSA account(s), can I change my allotment during the year?

Generally no, your election is irrevocable for that Plan Year unless you experience a Qualified Status Change (QSC).  QSCs are defined by the Internal Revenue Service in Section 125.  Some QSCs include:

• Change in legal marital status (i.e., marriage, legal separation, divorce, death of a spouse)
• Change in your number of dependents
• Birth or adoption of a child, or placement for adoption
• Death of a dependent
• Change in your dependent's eligibility (for example, your child reaches age 13 when he/she is no longer eligible for coverage under a DCFSA)
• Change in cost or coverage, i.e., a change in your day care provider or a change in cost of care or a change in FEHBP or other insurance.
• Change in employment status (i.e., for employee, spouse, or employee’s dependent) that affects eligibility for health insurance benefits.
• Change in residence affecting your eligibility for health care benefits (i.e., moving to an area that would require you to elect a new FEHB or other insurance plan).
• Change in the number of tax dependents you have (i.e., parent now resides with you/birth of child, etc.)

If you, your spouse, or your dependents have experienced a QSC, you may change your elections in the Federal FSA Program.  However, the requested change must be consistent with the event that prompted the election change.  For example, if you adopt a baby, you may want to increase your HCFSA and/or DCFSA elections to accommodate the added medical expenses and/or day care costs you may incur for this adopted child.  A situation where you may wish to decrease your DCFSA, for example, would be if your spouse decided to stay home with your child and you no longer had eligible day care costs.

Is there a fee for electing an FSA account?

Yes, there is a fee, also called an administrative expense, associated with participating in the Federal FSA Program.  The fee for choosing a Health Care Flexible Spending Account (HCFSA) is $4.00 per month for the total number of months you participate in the program.  The fee for the Dependent Care Flexible Spending Account (DCFSA) is 1.5% of the total amount elected for the Plan Year.  The good news:  you don’t have to pay the fee!  The Department of Defense (DoD), to which Air Force belongs, is paying the fees for its employees.

If I don’t use all the money in my FSA account(s) by the end of the year, will it be refunded to me or rolled over for use in the next plan year?

No.  Money not used in an employee’s FSA account at the end of the plan year will be forfeited.  There is proposed legislation in Congress that would permit an annual rollover of $500 for each established account, but we have no way of knowing whether this proposal will ever become law.

May I enroll in and receive the full amount allowed under the Dependent Care FSA if I and/or my spouse receive other child care subsidies?

Yes, you may enroll; however, under Section 129 of the Internal Revenue Code the maximum amount an employee may exclude from gross income is $5,000 of benefits received under a dependent care assistance program(s) each year.  This includes both child care subsidy programs and the dependent care FSA.  The limit is reduced to $2,500 for married employees filing separate income tax returns.  The exclusion cannot be more than the earned income of either the employee or the employee’s spouse.

If an agency has a tracking mechanism that allows them to monitor the total amount received through a DCFSA and a child care subsidy, that agency is responsible for deducting appropriate employee taxes and remitting both the employee taxes and employer chare of FICA once the $5,000 (or $2,500) is reached.

If the agency does not have a tracking mechanism or for some reason does not realize the employee has exceeded the $5,000 limit on dependent care and therefore did not remit employee taxes, the employee will reconcile that with the IRS at the time they complete and submit their taxes for the prior tax year.

More information about Dependent Care FSA and child care subsidies can be found on the FSAFEDS Web site by clicking on “Frequently Asked Questions (FAQs)” and then on “IRS Issues.”  Also, in the Office of Personnel Management’s Benefits Administration Letter (BAL) 03-803, dated 3 Jun 03, located on the Web at www.opm.gov/asd/htm/2003/03-803.asp.

How can I obtain additional information about the FSA program?

Detailed information about the program is available on the FSAFEDS Web site at http://www.fsafeds.com/, or you can speak with an SHPS customer service representative by calling 1-877-372-3337 (TTY 1-800-952-0450).  SHPS customer service representatives are available from 9 a.m. to 9 p.m., Monday through Friday, Eastern Time.

The FSAFEDS Web site also offers a FSAFEDS calculator that will help you estimate your FSA contribution and potential annual tax savings, based on your individual situation.  You will need to determine what your expenses will be for the year, and by this we mean expenses not covered by FEHB or any other insurance plan, or any other source.  For example, medical plan deductible, co-payments, dental plan deductible, dental co-payments, medical/dental/vision exams, prescription drugs, orthodontia, and other eligible expenses.  If you’re interested in a Dependent Care FSA, you’ll need to know the approximate weekly child or elder care expense.