Flexible spending account rules

A health care FSA or a dependent care FSA from your employer lets you set aside part of your pay before tax. IRS rules decide when that money is available, what it pays for and what happens to what’s left at the end of the plan year.

When your money is available

You choose how much to put in at the start of the plan year, and your employer takes it from your pay through the year. You can change or cancel your election only when the law and your plan allow it. Under the uniform coverage rule, your whole health care FSA election for the year is available at any time during the coverage period, however much you’ve contributed so far. The amount available includes anything your employer adds, less what the FSA has already paid you. The uniform coverage rule applies only to health care FSAs. A dependent care FSA can limit what it pays you to what you’ve contributed so far, less what it has already paid you.

What your FSA pays for

A health care FSA pays for the medical expenses your plan covers. The IRS bases them on the medical and dental expense deduction, which IRS Publication 502 explains. Over-the-counter medicine and menstrual care products also count, but health insurance premiums, long-term care and expenses another health plan covers don’t. A health care FSA’s expenses can include yours, your spouse’s, your dependents’ and those of your child who’s under 27 at the end of the tax year. To be paid back, you give the FSA a written statement from an independent third party showing the expense and its amount, and a written statement that no other health plan has paid it. A health care FSA can’t pay an expense in advance. A dependent care FSA pays for a qualifying person’s care so you can work. A qualifying person can be your dependent child under 13, or your spouse or another dependent who can’t care for themselves and lived with you for more than half the year. A dependent care FSA’s requirements closely follow the tests for the dependent care credit, which IRS Publication 503 explains. Overnight camp doesn’t count, and neither does tuition for kindergarten or a higher grade. Each kind pays only for its own expenses: a health care FSA can’t pay for dependent care, and a dependent care FSA pays only for dependent care.

What happens to unused money

FSAs are use-it-or-lose-it plans: money left in your FSA at the end of the plan year is forfeited, unless your plan offers one of these:

• A grace period of up to 2½ months after the plan year ends, through the 15th day of the third month. You can use what was left for expenses you incur during it.
• A carryover, for a health care FSA. Unused money can pay the next plan year’s medical expenses, up to a limit indexed for inflation that the IRS gives for each year in Publication 969. Your plan can set a lower limit, and anything over it is forfeited.

A health care FSA can’t have both. Your plan can also have a run-out period after the plan year, when you can still send in claims for expenses from that year. Your employer can’t refund unused money to you or pay it out in another form. One exception is a qualified reservist distribution: your health care FSA plan can allow one if you’re called to active duty as a reservist. If you leave your job, what’s left in your health care FSA is forfeited, unless you elect COBRA continuation coverage for it.

In Every

To enroll in a Health Care FSA or Dependent Care FSA your company offers, go to My profile → Benefits. On the FSA’s card, select Get started, then enter your yearly amount in Pre-tax income contribution (see Enroll in financial benefits). On the form, How it works? explains when your money is available and gives the year’s IRS limit. Once you’ve enrolled, you can’t change your FSA election on My profile → Benefits. When you enroll in a Health Care FSA, Every adds your whole yearly election, plus your company’s contribution, to your balance. A Dependent Care FSA’s balance grows as each regular payroll adds its contributions. You can’t claim more than your balance. On the FSA’s card on My profile → Benefits, select Plan details to see your FSA’s Start date and End date (see Check an FSA or commuter balance). With a benefit card, it also shows what you’ve spent and what you have left, and when the plan has an end date, Balance is going to expire shows that date. To be paid back for an expense you paid yourself, submit a claim from My transactions → New reimbursement (see Claim a benefit expense). When your benefit card pays for a Health Care FSA or Dependent Care FSA purchase, Things to do on Home asks for its receipt.