What Is Eligible for FSA?
- Employee Benefits
6 min. Read
Last Updated: 06/14/2023
Table of Contents
Employers looking to enhance their employee benefits package may want to consider adding a flexible spending account (FSA) option. What is an FSA? A healthcare or health or limited purpose health flexible spending account gives employees the opportunity to save pre-tax dollars and use them to pay for eligible healthcare-related items and services throughout the year. Employers may also contribute funds to an employee's flexible spending account, but they are not required to do so.
Money contributed to a healthcare (health) flexible spending account may only be used to cover the cost of eligible medical expenses. The IRS defines medical expenses as costs related to the diagnosis, cure, mitigation, treatment, or prevention of disease. To maximize the benefits of an FSA, employers should provide information about eligible FSA expenses to their employees. Because FSAs have use-it-or-lose it features, it's important for employees to understand how to estimate their medical spending over the year to avoid forfeiting a portion of their balance.
Expenses and Items Eligible for FSA
Employees can decide how much they want to contribute to an FSA through payroll deductions. Typically, health FSA participants use their contributions to reimburse themselves for co-payments and other out-of-pocket medical expenses not covered by their health plan. Most dental expenses also qualify, including costs for non-cosmetic orthodontics and extractions.
Health FSA-eligible expenses include:
General Expenses and Items
- Doctor fees
- Flu shots
- Hearing aids
- Sleep aids
- Motorized wheelchairs
- Chiropractic services
Dental and Vision
- Dental cleanings
- Contact lenses and contact solution
- Eye exams
- Eye surgery
- Eye drops
- Disposable face masks
- Hand sanitizer
- At-home COVID tests
Other Health FSA Eligible Expenses and Items
- Birth control pills and contraceptives
- Hormone therapy
- Home medical equipment
- Indigestion medications
- Pain relievers
- Acne medications
In collaboration with Paychex, the FSA Store provides an expansive list of eligible items that can help you determine how to spend different FSA funds.
Dependent Care FSA Eligible Expenses
In addition to health or limited purpose health FSAs, dependent care FSAs allow employees to save funds to cover the cost of caring for an adult dependent or child under the age of 13. According to the IRS, dependent care expenses must be incurred primarily to ensure the individual's well-being and protection. Additionally, the costs must allow an employee to fulfill their work duties or to actively seek employment.
Some of the costs that are eligible for Dependent Care FSAs include:
Adult or child daycare costs may be paid for using a dependent care FSA. The daycare facility must comply with all state and local licensing requirements. Payments to the facility for the dependent's transportation between home and the daycare are also eligible expenses.
The cost of a babysitter, nanny, au pair, or other in-home care, if work-related, is eligible for reimbursement. Payments for caregiving made to a related person who is not your dependent may be eligible for reimbursement as long as the caregiver is not the payer's spouse, the child's parent, or the payer's child under the age of 19.
Additional Fees for In-Home Care
Agency fees required to secure in-home care services are eligible. If the in-home caregiver also provides other services such as house cleaning, the related fees for these services are not eligible unless it's only a small part of their overall service. Any meals, lodging, or taxes paid for the caregiver are counted as eligible expenses.
The cost of day camps may be reimbursed through a dependent care FSA. Specialized camps such as sports camps are also eligible. However, overnight camps are not considered eligible expenses, even when a portion of the time spent at camp is during work hours. Extra charges, such as payments for field trips, are not eligible.
Before and After School Care
Before and after care programs are eligible for reimbursement. The primary reason for this expense must be for child care, not for educational purposes.
Preschool tuition is an eligible expense.
Expenses and Items Requiring a Letter of Medical Necessity
Expenses that are viewed as beneficial to overall health, such as dietary supplements, a yoga class, or vitamins, are not considered eligible expenses for a healthcare FSA. However, in some cases, items that are typically non-eligible may be qualifying expenses for certain individuals, if accompanied by a letter of medical necessity (LOMN).
Some examples of items that require a letter of medical necessity include:
Air Conditioner, Air Purifiers, Air Filters, or Humidifiers
If these items are primarily purchased to mitigate a health condition, they may be eligible for health FSA reimbursement with a LOMN from a doctor.
Specialized Infant Formula
Parents of infants requiring a specialized formula may be able to receive reimbursement of these costs through their health FSA.
A LOMN may be required for a breast reduction related to an ongoing health condition, as the costs of cosmetic breast reduction are not eligible for health FSA reimbursement.
Some dermatological treatments may require additional substantiation prior to approval for health FSA eligibility.
If modifications or improvements are made to a home to assist with the mitigation of a health condition, the related costs may be health FSA-eligible.
Vitamins or Supplements
Vitamins needed to mitigate a specific health condition, such as iron supplements for anemia or calcium supplements for osteoporosis, may be health FSA-eligible with a LOMN.
Expenses and Items Not Eligible for Health FSA
Employees using a health FSA will need to understand which items are not eligible for reimbursement. Employers should communicate examples of items not covered, including:
- Cosmetic surgeries provided for reasons other than correcting congenital deformities, disease disfigurement, or to correct personal injuries that result from accidents or trauma
- Childbirth class expenses for the coach (those for the expectant mother are covered)
- Exercise equipment for general well-being
- Marriage counseling
- Special foods that represent normal consumption and satisfy nutritional requirements
- Treatments from alternative providers
- Personal care items
- Infant formula
- Funeral expenses
- Payment of insurance premiums, or
- Prescription drugs from another country
FSA Eligibility — Frequently Asked Questions
What Are the Most Commonly Eligible FSA Expenses?
In addition to medical copays and out-of-pocket costs, health FSAs can be used to pay for prescription and over the counter medications, vision expenses such as glasses or contacts, or dental expenses. Because the employee's annual contribution is available at the start of the year, health FSA dollars can be used to pay for large healthcare expenses, such as out-of-pocket costs related to medical procedures. The employee then contributes to the account throughout the year, making budgeting easier.
What Does Health FSA Eligible Mean?
Health FSA-eligible expenses are related to the diagnosis, treatment, mitigation, cure, or prevention of a disease. They must be considered medically necessary and not just an expense related to one's general well-being. When an item is considered health FSA eligible, it may be purchased using pre-tax dollars from a health FSA.
How Is Money Distributed From an FSA?
Generally, account holders can access their savings through the use of an FSA debit card (depending on the type of FSA account) or by requesting a reimbursement after incurring an eligible expense. An FSA debit card can be swiped or used online for direct payments from the account. If this is not an option, employees may submit receipts or proof of purchase and receive a reimbursement payment from their FSA.
Learn More About Paychex FSA Benefits
Given that FSAs provide tax savings for both employers and employees, as well as offer the opportunity for participants to save money throughout the year to cover the costs of health care or dependent care, this may be an excellent benefit to offer your workforce. If you'd like to add to your company's employee benefit offerings, Paychex can help you through the initial setup and administration of FSAs.