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Flexible Spending Account (FSA) Benefits From Paychex

Offer a Paychex FSA to your workforce to enhance your health benefits and provide mutual tax savings. Learn how we can help you offer an FSA for your small, large, or enterprise-level business today.

Elevate Your Benefits Offerings With a Paychex FSA

We can help you offer an FSA as a lucrative benefit that enhances your overall health insurance offerings. Paychex helps with:

  • FSA implementation and plan setup
  • Ongoing administration
  • Development of employee communications to encourage participation
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Flock Benefits Administration

Understanding Flexible Savings Accounts (FSAs)

A health care FSA enables pretax spending on qualifying healthcare expenses such as co-pays, prescriptions, vision care, and dental work for employees, their spouse, and eligible dependents. These plans are voluntary, with the option for employer FSA contributions to be made on top of employees’ pretax contributions.

an employee using a flexible spending account to pay for her eyeglasses prescription

Choose the Type of Flexible Spending Account That Works for You

Health Care FSA

More Affordable Health Coverage

Also known as a medical FSA, a health care flexible spending account allows employees to use pretax funds for qualifying out-of-pocket medical expenses like co-pays or deductibles. Money becomes usable upon enrollment, which is funded via payroll deduction.

an employee using her health saving account for her medical checkup
Transportation FSA

 A Commuter Benefit

Up to $300 per month can be deducted pretax from an employee’s paycheck for work-related commuting, parking, and mass transit expenses. Once the employee pays for expenses out-of-pocket, they may be reimbursed for qualified costs.

an employee using his commuter FSA benefits to pay for transportation
Dependent Care FSA

Support Those Who Need You

The dependent care FSA, also known as the childcare FSA, allows employees to pay for certain dependent care services such as summer camp and child or adult daycare on a pretax basis. Funds are available after contribution, meaning the entire year’s allocation isn’t instantly available. Costs are paid upfront and then reimbursed afterward.

A family visiting the doctor
Limited Purpose FSA

Cover Dental & Vision Care

A limited purpose FSA is used in conjunction with a high-deductible health plan (HDHP) and a health savings account (HSA) to pay for eligible dental and vision care expenses only. The total amount contributed is available on the first day of the plan year.

an employee using her non-voluntary dental insurance

How Does an FSA Work for Employers?

An employer flexible spending account (FSA) is offered in conjunction with group health insurance and provides an added benefit to employees.

  • A health care FSA allows employees to voluntarily set aside up to $3,050 in 2023 for qualifying medical expenses not covered by insurance
  • Employers can also subsidize or match employee FSA contributions
  • Employer contributions don’t typically impact employee FSA contribution limits unless employees elect to receive employer contributions in cash or as a taxable benefit
an hr manager setting up direct deposit for his employees

FSA Benefits for Employers

There’s much value in employers offering FSAs, with benefits that include:

Notable Tax Advantages

Enrolled employees’ reduced taxable income via FSA contributions results in Medicare and Social Security (FICA) tax savings for employers.

Healthcare Coverage Enhancement

Contribute to employee retention, morale, and loyalty when you help workers and their dependents pay for qualifying medical expenses not covered by the group insurance plan.

Control Over the FSA Plan

FSAs require relatively minimal expenses for the business and offer control over plan details such as the carryover or grace period options, or neither.

Help Employees Pay for Healthcare and Save on Taxes

How Do FSAs Work for Employees?

Eligible employees can sign up for FSA benefits during open enrollment.

  • During this time, they need to provide some basic details and how much they want to contribute for the year (modifiable only due to qualifying events)
  • Contributions are deducted pretax from the employee’s paychecks throughout the year
  • Employees can only take advantage of an FSA if you, as the employer, choose to offer it
employee satisfied with their benefits

FSA Benefits for Employees

Medical Savings

Enrolled workers can use up to $3,050 to pay qualifying medical expenses not covered by their health insurance.

More Take-Home Pay

Employees can contribute a set amount of pretax dollars toward their FSA balance to cover qualifying medical expenses. This may give employees more take-home pay because they pay less in taxes.

Immediate Account Access

Employees can monitor funds online and gain immediate access to their account through an FSA debit card.

Evenly Spaced Savings To Manage Costs

Health care and limited purpose FSAs allow employees to save throughout the year, which helps them budget and manage large healthcare costs. Carryover provisions discourage rushed spending to avoid the “use it or lose it” mindset.

No Required Payback of Reimbursed Funds

For medical FSAs, funds are taken from paychecks gradually, but the total annual contribution is available right away (or after the first contribution). Employees who leave before year-end after using the total amount don’t need to repay the employer.

Works With Any Employer-Sponsored Group Health Plan

Unlike an HSA, which you can only offer in conjunction with a qualifying HDHP, an FSA can be offered with any employer-sponsored group health plan that includes minimum essential coverage, potentially allowing greater workforce participation in this type of benefit account.

Why Is Paychex a Leading FSA Solution?

Payroll and Employee Benefits Integration

Paychex Flex® — our all-in-one benefits, payroll, and HR technology solution — integrates benefits such as an FSA with Paychex Payroll so you can automate contribution deductions and simplify plan administration.

Easy Claims Submission Process

Participants can choose to initiate claim submissions directly within Paychex Flex or by mail or fax.

Convenient Reimbursement Methods

We offer many ways to reimburse employees, from a Paychex FSA Debit Card that allows them to pay for eligible expenses directly from their FSA account, direct deposit to their bank account, and checks mailed directly to employees’ homes.

Support When and Where You Need It

Our FSA benefits specialists are available via a dedicated toll-free support line to help with plan setup and management.

Other Employee Health Benefit Account Products To Consider

a female employee using voluntary benefits insurance for her vision exam

Health Savings Account

Run your business the way you want. Compare and choose the best payroll solution that meets the needs of your company and your employees.

an employee using teleheath to reduce his healthcare costs

Health Reimbursement Arrangements

Reimburse employees for medical expenses and even insurance premiums with HRAs, which are employer-sponsored benefits.

a manager discussing goal setting with her employees

More Benefits Accounts

Discover how benefits accounts such as FSAs, HSAs, and HRAs can each attract and keep a high-quality workforce, reducing your tax bill. And control healthcare costs.

FSA Frequently Asked Questions

  • What Items Are Eligible for FSA?

    What Items Are Eligible for FSA?

    It’s up to employees to decide how much they want to contribute to a healthcare flexible spending account using payroll deductions. Typically, participants use their contributions to a health care FSA to reimburse themselves for co-payments and other out-of-pocket, non-covered medical expenses. Most dental expenses also qualify, such as non-cosmetic orthodontics and extractions. Other healthcare FSA-eligible expenses include:

    • Dentures
    • Eyeglasses/contact lenses
    • Laser eye surgery
    • Medical monitoring devices
    • Walking assistance devices
    • Wheelchairs and repairs
    • Sterilization

    Resources like the Paychex FSA enrollment material offer a list of expenses at a glance for enrollees to review. Paychex partners with the FSA Store, which also provides an expansive list of FSA-eligible items while offering a means for employees to use their funds. A quick reference tool (like a one-pager or web page) listing common items employees can use their FSA funds to pay for is also helpful. These useful communication tools can take the burden away from busy HR professionals.

  • How Do Employees Use Their FSA?

    How Do Employees Use Their FSA?

    FSA participants pay for approved items or services with an FSA debit card or use an account reimbursement service when they submit substantiation for eligible expenses.

  • What Are Some Ineligible FSA Items?

    What Are Some Ineligible FSA Items?

    Participants cannot use their account funds for:

    • 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
    • Prescription drugs from another country
  • Do FSAs Cover Employees’ Over-the-Counter Medication?

    Do FSAs Cover Employees’ Over-the-Counter Medication?

    Health care FSAs cover over-the-counter drugs and remedies. Some examples of FSA-eligible items include:

    • Indigestion medications
    • Eye drops
    • Laxatives
    • Pain relievers
    • Sleep aids
    • Acne medications
    • Diaper rash ointment
    • Ointments for minor injuries
  • When and How Do Employers Choose Flexible Spending Account Plans?

    When and How Do Employers Choose Flexible Spending Account Plans?

    If you wish to offer employees an FSA account plan, the timing of your decision is imperative. Ideally, your new FSA should be ready to go before the following year's open enrollment. This will allow employees to do their research and make their plan elections accordingly. If you currently offer an FSA and need to amend your plan, be sure to communicate any changes to participants.

  • How Can I Help Employees Decide Whether To Enroll in an FSA?

    How Can I Help Employees Decide Whether To Enroll in an FSA?

    Employees should attempt to project their reimbursable healthcare expenses for the year and decide if it makes sense to set aside money each pay period to cover them. That’s because they should avoid losing contributed funds when they don't have the necessary medical expenses. Looking back at past years' expenses can help determine if enrolling in the company’s healthcare FSA plan makes sense.

  • What Is the FSA Carryover or Grace Period Option?

    What Is the FSA Carryover or Grace Period Option?

    Although not required, employers have two options they can institute to help employees take advantage of all the money they’ve contributed to their healthcare or limited purpose FSAs.

    • Allow employees to carry over up to $610 of unused health FSA money at the end of the year to apply to the next plan year (remaining funds in excess of $610 are still forfeited to the plan); or
    • Elect a grace period to permit employees to use their unused account balances to pay for medical costs incurred during the first 2.5 months of the following plan year (up to March 15 for calendar year plans) before they must forfeit the money.

    Before making a final decision, employers should carefully weigh health care or limited purpose FSA benefits or any insurance benefit account and understand the administrative requirements of a carryover or grace period option.

  • When Do You Need To Pick the Carryover or Grace Period Option?

    When Do You Need To Pick the Carryover or Grace Period Option?

    Both options are intended to reduce “wasteful” end-of-year spending as employees hurry to spend their health care or limited purpose FSA accounts rather than lose the money. Employers are not required to offer either option, in which case the “use it or lose it” rule will still apply. But if you offer one of these options to your workforce, you must pick only one, as employers cannot allow employees both a carryover and a grace period for the health or limited purpose FSA. You may wish to review any available data on current FSA utilization before deciding which option would work best for your company’s workforce. Once you make your selection, notify employees as soon as possible to give them enough time to make an account selection and adjust their medical spending as needed.

  • How Do You Communicate to Employees About FSAs?

    How Do You Communicate to Employees About FSAs?

    If you want employees to take full advantage of an FSA benefit, you must strive to communicate how they can best use the plan clearly. A well-drawn FSA employee benefits communication strategy can enhance your employees' understanding of enrolling in the plan and receiving the maximum benefits. While information on FSA accounts should be included in open enrollment, it must also be provided to new hires when they become eligible for employee benefits. FAQs and other health plan information may also be provided online via a company benefits portal. Remember that employees' communication preferences may vary, so you may want to make this information available in print and digital formats.

  • How Do You Educate Employees About Flexible Spending Accounts?

    How Do You Educate Employees About Flexible Spending Accounts?

    Communication efforts about an FSA should be easy to understand and designed to educate employees on the advantages of this benefit account. An FSA quick reference guide listing common items employees can use their FSA funds to pay for is also helpful. You can also provide commonly asked questions, key enrollment dates, and examples that break down different cost scenarios. You'll also want to remind employees about any FSA spending deadlines and clearly explain the carryover or grace period options made available to them, including specific dates and deadlines.

  • How Do You Set Up an FSA?

    How Do You Set Up an FSA?

    If you're not currently offering an FSA, this can bring tax savings for both you and your employees and provide a much-desired add-on to your health benefits. Paychex offers assistance with FSA implementation, ongoing administration, and the development of employee communications to encourage participation.

  • Who Owns the FSA?

    Who Owns the FSA?

    Regarding ownership of an FSA, the account owner is the employer. If an employee is terminated or is no longer eligible to participate in the FSA, unreimbursed contributions may be forfeited.

  • What Expenses Are Covered by an FSA?

    What Expenses Are Covered by an FSA?

    Except for Medicare premiums, FSAs cover many of the same qualified medical and dental expenses as an HSA. Review IRS Publication 502; for a detailed list of what is and isn’t covered.

  • What’s the Difference Between an FSA and HSA?

    What’s the Difference Between an FSA and HSA?

    Does an HSA allow employees to use pretax dollars? Is FSA pretax? While both an FSA and HSA allow enrollees to save money to pay for qualified medical expenses before taxes are taken out, these arrangements have fundamental differences. Most notably, HSAs require enrollment in a qualifying high deductible health plan (HDHP), belong to the employee, funds are not subject to “use-it-or-lose-it,” and the individual can take the account with them if they leave the company. Conversely, an FSA is owned by the employer. Get more details about the differences between FSAs, HSAs, and HRAs.

  • Can an Employer Offer an FSA Without a Health Plan?

    Can an Employer Offer an FSA Without a Health Plan?

    A company that does not offer a group health insurance plan generally cannot offer an FSA unless the FSA qualifies as an excepted benefit.

  • How Can Employers Stay Compliant With FSA Rules?

    How Can Employers Stay Compliant With FSA Rules?

    To create a robust employee benefits strategy and maintain compliance, it is imperative to factor in flexible spending account employer rules. To start, employers should understand IRS guidelines and create a clear plan that outlines the terms, eligibility criteria, and limitations of their FSA accounts. Communicate aspects such as eligible expenses and FSA employer contribution limits to employees so everyone is on the same page. Also, file the required forms, perform periodic audits, and confirm dependent eligibility when necessary.

  • Can Small Businesses Offer FSAs?

    Can Small Businesses Offer FSAs?

    Yes, an FSA for small business owners is possible. Consider if the benefits of an FSA account align with your priorities and are something you want to offer employees. If these things align, a benefits broker or an FSA provider for small businesses can help you provide this to employees, allowing them access to affordable healthcare and tax savings.

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