Using Flex Spending Accounts to Get Healthy and Stay Healthy
Healthcare Flexible Spending Accounts (HFSA's) and Dependent Care Flexible Spending Accounts (DCFSA's) make it easier for your employees to maintain their health and take care of family members. Flex spending is a valuable benefit that can help your employees stay focused on their jobs by easing the burden of medical expenses. However, many employees don't understand how these plans work and how they can use these medical benefits to their advantage. As their HR resource, you must provide employees the answers they need so they can make informed decisions regarding their health and how they want to use their income.
HSFA's can be used for copays at the doctor and prescriptions from the pharmacy. You can also use it to purchase health-related equipment, or over the counter medicines. For instance, employees can use it to buy insulin, aspirin, braces, and crutches. However, it's vital to remind employees that they cannot use their HFSA to cover insurance policy premiums. It's also a good idea to tell employees that the amount they can contribute to flex spending accounts next year is going up from $2,700 to $2,750. It is not a substantial increase, but they will appreciate saving a few more dollars on their tax bill.
For most DCFSA's, the maximum contribution in 2020 is $5,000 for married and filing jointly or single parent. For married filing separately, the limit is $2,500. Your employees can use the DCFSA to cover preschool expenses, day camp, and after school programs, as well as both child and adult daycare. With more working-age adults taking care of aging parents, many will benefit from maximizing their dependent care contributions to cover the costs of home health care. However, it's important to remind employees that a DCFSA cannot be used to cover expenses associated with assisted living facilities or full-time nursing home care.
Helping Employees Make Informed FSA Decisions
One of the most significant drawbacks of HFSA's and DCFA's is that most of these accounts are still "use it or lose it." Any funds that remain in the account at the end of the plan year evaporate when the clock strikes midnight on the appointed date.Some plans are evolving to provide a few months added flexibility, but these are far from the norm at this point. Because each plan is different, it is recommended to send reminder emails to employees as the date approaches. This can help them use those funds before they are gone forever. Employees must understand this when they decide how much of their monthly income they want to contribute.
Predicting the Future
The best way to estimate future healthcare spending is to look at past spending patterns. In general, an average of the past 2-3 years is sufficient for this purpose.However, life is fluid and it changes as the years go by. Children are born, health conditions emerge, and disabilities can manifest themselves. Employees should consider their known future needs, such as having a baby, braces for a child, planned surgical procedures, etc. When these foreseeable expenses are on the horizon, it is a safe plan to maximize the employee's FSA contributions.
The Invaluable Value of Thorough Records
You should remind employees that they should keep thorough records of their expenditures. They should itemize all associated receipts, canceled checks, credit card receipts, etc. These records will come in handy if the IRS requests eligibility verification.We invite you to contact Greenlink Payroll at (480) 385-2525 for more information about flex spending accounts. Our team has the answers your employees can depend on to keep both their family and their bottom line healthy.