Flexible Spending Account (FSA) Benefits From Paychex
Offer a Paychex FSA to your workforce as a way to provide a much desired add-on to your health benefits, plus bring tax savings for both you and employees.
Why Choose 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
What Is a Flexible Savings Account?
An FSA allows employees to use pre-tax dollars to pay for eligible out-of-pocket healthcare expenses such as co-pays, prescription and over-the-counter medications, vision care, and dental work — for themselves, their spouse, and eligible dependents. These account-based plans are voluntary, and employers can make contributions on top of employees' pre-tax contributions.
What Are the Different Types of Flexible Savings Accounts?
You can choose between multiple types of FSAs to offer employees.
Health Care FSA
Also known as a medical FSA, a health care flexible spending account allows employees to use pre-tax dollars for out-of-pocket medical expenses such as doctor co-pays, prescriptions, deductible expenses, and other eligible medical expenses. FSAs are funded via payroll deduction, and employees can start using the money as soon as their enrollment kicks in.
Transportation FSA (Commuter Benefit)
Up to $300 per month can be deducted pre-tax from an employee’s paycheck pre-tax for costs such as work-related commuting, parking, and mass transit. Once the employee pays for expenses out-of-pocket, they may be reimbursed for qualified costs.
Dependent Care FSA
The dependent care FSA, also known as the childcare FSA, allows employees to pay for dependent care services (preschool or daycare, summer day camp, before or after school programs, and child or adult daycare) on a pre-tax basis. Funds are only available if they’ve already been contributed, meaning the full year’s election is not available on day one of the plan year. Costs are paid out-of-pocket, then reimbursed afterward.
Limited Purpose FSA
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.
How Does an FSA Work for Employers?
If your business offers any type of group health insurance, you can offer your workers a flexible spending account as an additional benefit. An FSA is a voluntary plan that allows enrolled workers to contribute up to an annual maximum of $2,850 in 2022 to pay for eligible medical expenses not covered by their health insurance.
Additionally, employers may choose to subsidize or match workers' FSA contributions. Employer contributions generally don’t count toward the FSA limits for contributions unless employees elect to receive the employer contributions in cash or as a taxable benefit.
FSA Benefits for Employers
There’s much value in employers offering FSAs, with benefits that include:
Notable Tax Advantages
When enrolled employees reduce their taxable income through FSA contributions, employers pay less in Medicare and Social Security (FICA) taxes. The more employees who enroll, the more savings for the company.
Healthcare Coverage Enhancement
Help workers and their dependents pay for medical expenses not covered by the group insurance plan — a benefit that contributes significantly to employee retention, morale, and loyalty.
Control Over the FSA Plan
FSAs require relatively minimal expenses for the business, as well as control over plan details such as the “use it or lose it” or grace period options, or neither.
How Does an FSA Work for Employees?
Employees can sign up for FSA healthcare benefits during open enrollment, during which they simply need to provide some basic details and how much they want to contribute for the year (this amount can’t be changed during the year unless there is a qualifying event). Contributions are then deducted pre-tax 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.
FSA Benefits for Employees
Medical Savings
Enrolled workers can use up to $2,850 to pay medical expenses not covered by their health insurance.
More Take-Home Pay
Employees can contribute a set amount of pre-tax dollars toward their FSA balance to cover 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
FSAs allow employees to save evenly throughout the year, which helps them budget and manage large healthcare costs. Carryover provisions can also help to limit last-minute spending to avoid the "use it or lose it" mentality.
No Required Payback of Reimbursed Funds
Medical FSAs require that contributions come from each paycheck throughout the year, but the full annual contribution amount is available for use immediately (or after the first contribution). If the employee uses the full amount and then quits or is fired before year-end, they don’t have to repay medical FSA funds to the employer.
Works With Any Employer-Sponsored Group Health Insurance Plan
Unlike an HSA, which you can only offer in conjunction with an HDHP, you can offer an FSA with any type of employer-sponsored group health plan. This may mean more of your workforce can participate in this 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.
Convenient Reimbursement Methods
We offer many ways to reimburse employees, from a Paychex FSA Debit Card that can help increase employee enrollment, to direct deposit to their bank accounts, and mailing of reimbursement checks directly to employees' homes.
Support When and Where You Need It
Our FSA benefits specialists are available via dedicated toll-free support line to help with plan setup and management.
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 an FSA to reimburse themselves for co-payments and other out-of-pocket, non-covered medical expenses. Most dental expenses also qualify, such as costs for non-cosmetic orthodontics and extractions. Other 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 offers a list of expenses-at-a-glance for enrollees to review. Paychex partners with the FSA Store, which also provides an expansive list of items that are FSA-eligible, while also 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 types of communications 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?
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 prior to open enrollment for the following year. 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 it makes sense to enroll in the company’s FSA plan.
-
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 into their FSAs.
- Allow employees to carry over up to $570 of unused health FSA money at the end of the year to apply to the next plan year (remaining funds in excess of $570 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 next 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 FSA benefits, or any insurance benefit account, and also 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 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 do choose to 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 their health 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 clearly communicate how they can best use the plan. A well-drawn FSA employee benefits communication strategy can enhance your employees' understanding of how to enroll in the plan and receive 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. Keep in mind that employees' communication preferences may vary, so you may want to make this information available in both print and digital formats.
-
How Do You Educate Employees About Flexible Spending Accounts?
How Do You Educate Employees About Flexible Spending Accounts?
Communications 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 employees as well as 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?
In regard to 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?
While both an FSA and HSA allow enrollees to save money to pay for qualified medical expenses before taxes are taken out, there are key differences between these arrangements. Most notably, HSAs require enrollment in a 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.