New Healthcare Fllexible Spending Account Rules for 2013

A flexible spending account or FSA is a plan that allows an employee to set aside a portion of their earnings to pay for qualified expenses, usually medical expenses. Money that is deducted from an employee’s pay into an FSA is not subject to payroll taxes. You can save up to 40 percent on hundreds of products and services such as eyeglasses, prescriptions, dental care and over-the-counter items. One major disadvantage is that funds not used by the end of the plan year are lost to the employee. It is being considered to do away with the “use it or lose it” rule.

There are new rules relating to FSAs for 2013. Under ObamaCare, starting January 1, 2013, there is a new $2,500 cap on healthcare flexible spending accounts. In the past, there were no statutory caps, but most employers set caps at $5,000.

There are a couple of ways to get around the $2,500 cap. If you hold two or more jobs, you can elect up to $2,500 under each employer’s FSA plan. Also, if you are married and you both work for employers that provide FSAs, then each of the two spouses can elect up to $2,500 for a total of $5,000, even if they work for the same employer. 

WageWorks has a complete list of what is covered and examples of what is not covered. Since January 1, 2011, over-the-county items haven’t been covered unless you get a letter of medical necessity from your doctor, or a note on a prescription pad for an Rx item. 

If you have a health savings account that is another tax-favored healthcare account, your flexible spending account is limited to covering dental and vision expenses. The thinking behind this is that you already got a big tax benefit by saving pre-tax dollars for healthcare spending in the health savings account. 

It is important to have a general idea at the first of the year when you are determining how much to put into your flex spending account. Remember, the “use it or lose it” rule states dollars that are  left in the FSA account at the end of the plan year are forfeited. 

A flexible spending health account is a great way to put away money tax free for medical and other health expenses, but there are things to consider before putting money into a flex account.