Frequently Asked Questions

Flexible Spending Account

The following Q & A is in response to a number of common FSA questions received by KHPA in regard to Health Care and Dependent Care Flexible Spending Accounts:

I don’t like the "Use-it-or-lose-it" FSA rule. Why can't my unused funds just be put towards next year's claims?

There are a number of reasons for this. Section 125 of the IRS tax code determines many of the rules and regulations for FSA's that plan administrators (State of Kansas) must follow. One rule in particular is the rule stating that there may be no deferral of compensation. Specifically, money contributed in one plan year cannot be used or deferred to pay for benefits in another plan year (except during the Grace Period mentioned later on). The main reason for this rule is to prevent adverse selection and/or a participant from using their FSA as a tax shelter. As a result, participants must re-enroll each plan year. However, the only two known exceptions in this situation, where expenses incurred in one plan year may be payable into another, are for Orthodontia expenses and durable medical equipment.

What is the difference between a Health Care FSA and a Dependent Care FSA?

The purpose of a Health Care FSA is to allow a participant to pay for unreimbursed medical, dental and/or vision expenses (deductibles, co-pays, etc.) on a pre-tax basis. The purpose of a Dependent Care FSA is to reimburse a participant for incurred dependent day care expenses on a pre-tax basis. Please be advised, a Dependent Care FSA is only for day care expenses, not health expenses for your dependent!

Where can I go to find out what expenses are considered eligible under a Health Care or Dependent Care FSA?

The easiest way to find out if an expense is considered eligible is to go to the ASI website, www.asiflex.com. There you will find an extensive list of eligible FSA expenses. These expenses are determined by IRS/ Department of the Treasury Publications 502 (for Health Care FSA) and Publication 503 (for Dependent Care FSA). These publications are available on the IRS website at www. IRS.gov.

What is the deadline for incurring an eligible 2009 expense and for filing a claim?

All 2009 eligible expenses must be incurred between 01/01/2009 and 03/15/2010 (includes grace period) to be considered payable for the 2009 plan year. The deadline to file a claim for a 2009 expense is 04/30/2010.

If I experience a Qualifying Event, when will the change become effective?

According to Section 125 of the IRS tax code, all eligible changes must be made on a prospective, or "future forward" basis. Participants have 31 days to inform KHPA, in writing, of a qualified change in status, but the effective date of the change will be the first of the month following the receipt and approval of the change request and not necessarily the first of the month from the date of the event. For example, if a participant gets married on March 23rd and doesn’t submit a change form requesting to increase his/her contribution until April 10th, the effective date of the change will be May 1st, not April 1st.

If I acquire a dependent child after the first of the year through either childbirth, adoption or via court-order can I still set up a Dependent Care FSA account?

Yes, the acquisition of a dependent through childbirth, adoption or court-ordered custody is considered a qualifying event and a Dependent Care FSA may be established. For those acquired dependents that are adopted or acquired via court order; the child must be under age 13 to be considered eligible.

If I become effective after the first of the year can I still contribute the annual maximum of $5,000?

No, the maximum amount a participant may contribute each paycheck to either a Health Care and/or Dependent Care FSA is $208.33.

If my spouse loses their job, can I reduce my FSA contribution?

No, when a spouse loses their job, a stop or reduction of their Health Care FSA is not allowed. The only change that can be made is an increase in the participants FSA contribution, and that is only if the spouse had an FSA at their previous job.

If I go on a leave of absence, what are my contribution options?

When a participant goes on a leave of absence there are four options available:

Make a lump-sum pre-payment for the time you're going to be gone, if known.
Make after-tax contributions via personal check.
Make a catch-up contribution upon your return.
Make no payment and elect a period of no coverage for the time you are gone. However, if this option is elected, claims incurred during this period of no coverage are not reimbursable.

Will we have the option of getting a debit card to use for the 2010 plan year?

Yes, for Plan Year 2010 an FSA Debit Card will be available on a voluntary basis for those who elect a Health Care FSA. For more information please see the Debit Card Q & A.