2011 Critical Changes to Flexible Spending Accounts (FSAs)

Flexible Spending Accounts (FSAs) are a popular benefit that deliver tax savings to employees and employers. They allow employees to stretch their spending power by setting aside pre-tax dollars from their paychecks for medical, dental, and vision-related expenses that are not covered by their health insurance plans. As you know, AdvanStaff HR offers a FSA/Section 125 plan to employers and employees at no charge. Employee can see all FSA activity and balances by loggig into Web Edition at any time.

However, the Patient Protection and Affordable Care Act passed on March 23, 2010, eliminates one of the favorable provisions of these accounts as of January 1, 2011. That’s when over-the-counter purchases will no longer be eligible for reimbursement.

Make no mistake, FSAs are still a great benefit. Here’s a reminder of how they work, as well as details about the upcoming change.

FSA Overview

Employees who participate in AdvanStaff HR’s flexible spending account plan designate an annual amount to be deducted from their paychecks over the course of the year. That amount is treated as a salary reduction for the purposes of federal income tax, Social Security and Medicare (and often state income tax), resulting in tax savings. Employers also realize payroll tax savings.

As eligible expenses are incurred, participants submit receipts tot eh AdvanStaff HR benefits Department and are reimbursed from the funds they have set aside on the next payroll run. Expenses that are reimbursable include co-pays and deductibles for medical, dental, and vision care visits, eyeglasses, contact lenses, prescription drugs, medical supplies, and for now… certain over-the-counter medications.

For additional info on the Flexible Savings Accout benefits, click HERE.

You can also use our handy FSA tax-savings calculator by clicking HERE.

The Unfavorable Change

Thanks to a provision in the Patient Protection Act, the ability to purchase over-the-counter medications with FSA funds has been rescinded, beginning January 1, 2011.

It’s important participants know about this change, well in advance of the end of this year. FSA account holders who have set aside money with the intention of buying over-the-counter medications can still do so and get reimbursed, but they need to make purchases by December 31.

Note: It is also important to know not all over-the-counter medications qualify for reimbursement. For example, some items, such as nutrition supplements, may only be eligible for reimbursement if they are purchased according to a doctor’s order.

Click here for some questions and answers about this important change from the IRS.