1. What does FSA stand for?

FSA stands for “flexible spending arrangement.” It is sometimes referred to as a “health care FSA” and most commonly abbreviated simply as FSA. In addition to a standard FSA, there are a few other types of health care FSAs that your employer may offer. A Limited Purpose Flexible Spending Account (LPFSA) is only eligible for use on dental and vision expenses. A Dependent Care Flexible Spending Account (DCFSA) is only eligible to pay for services that your dependents may need, such as preschool, before- or after-school programs for children, and adult daycare. If you have one of these types of FSAs, your eligible expenses and account rules will be different. Talk to your HR department to understand the types of expenses that you can use your funds to cover.

2. What is a flexible spending arrangement?

An FSA is a special account available through employers that offer this health care benefit. You select how much you want to contribute at the beginning of the year, which is then deducted periodically in accordance with your annual election. You can then use those funds to pay for certain out-of-pocket health expenses like co-pays for office visits, deductibles, and other health care costs, including certain over-the-counter medicines and supplies. The big benefit of having an FSA is that the funds you put in are deducted from your pay pre-tax, which can save you money come tax season. While some employers may also pay into your FSA, they are not required to. Your HR department can give you more information on the company’s policy. A “Limited Purpose FSA” is subject to additional special rules described below.

3. What are the 2022 FSA limits?

2022 FSA limits have increased from last year. In 2022, you can put up to $2,850 into your FSA account. FSA contribution limits are set on an individual basis so, if you are married, your spouse may also be able to contribute up to $2,850 for the 2022 plan year.

4. Does my FSA balance roll over into future tax years?

In most cases, no. FSA funds come with a “use it or lose it” policy. If you don’t spend the money you put into the account by the end of the plan year, you'll lose that money. In other words, you need to incur the expenses during the applicable year and then submit for reimbursement of those expenses by the deadline established by your employer (after the end of the year). Remember, the date on which the medical services are performed or the items purchased is what must be during the applicable year, not the date on which you paid the service provider.

In some cases, your employer may choose to offer one of two options: (1) the plan could be designed such that you have an extra 2.5 months after the end of a year to spend your FSA funds (to incur those expenses) before any remaining balance is forfeited, or (2) the plan could allow you to roll over $570 for use in the following year. Be sure to check with your employer to understand the rules for their FSA plan, and don’t put more money into your FSA account than you think you will spend in one year.

5. How are FSA funds distributed?

Distributions from an FSA are paid to reimburse you for eligible medical expenses you incurred during the period of coverage. You must provide your FSA with a written statement from an independent third party stating that the medical expense has been incurred and the amount of the expense. You must also provide a written statement that the expense hasn’t been paid or reimbursed under any other health plan coverage. Please check with your HR department regarding what documentation may be required. The FSA can’t make advance reimbursements of future or projected expenses.

To the extent applicable, debit cards, credit cards, and stored value cards given to you by your employer can be used to reimburse participants in an FSA. If the use of these cards meets certain substantiation methods, you may not have to provide additional information to the health FSA. 

6. What is FSA eligible?

Permissible FSA eligible expenses can vary depending on your employer’s plan. Check your plan information for a complete list of which items are eligible and which items are not. In general, you can use your FSA dollars to pay for: prescription medications, over-the-counter medications that your doctor provides you with a prescription for, insulin, copayments for doctor’s office visits, certain wellness treatments like acupuncture, and certain medical supplies like crutches and braces. Keep in mind that some over-the-counter medications that do not normally require a prescription for purchase may require a prescription from your doctor in order to be eligible for FSA reimbursement. Most over-the-counter supplies, such as bandages and walking canes, do not require a prescription to be eligible for reimbursement. Your employer should be able to provide you with a comprehensive list of FSA eligible expenses. See below for a sample list or IRS Publication 502.

7. What is not FSA eligible?

You can’t receive distributions from your FSA for amounts paid for health insurance premiums, amounts paid for long-term care coverage or expenses, or amounts that are covered under another health plan.

8. What does HSA stand for?

HSA stands for “health savings account.”

9. What is an HSA?

An HSA is a special, tax-advantaged account to pay or reimburse certain medical expenses you incur – meaning money goes in tax-free, earns interest or investment returns tax-free, and is not taxed when it’s withdrawn to pay for qualified expenses. To be an eligible individual and qualify for an HSA, you must be covered under a high deductible health plan (HDHP) on the first day of the last month of your tax year (December 1 for most taxpayers). You cannot have other health coverage (with some exceptions) or be enrolled in Medicare. Some benefits of HSAs include:

  • You, an employer, or even a family member may make contributions to your HSA.

  • Your HSA dollars earn interest or investment returns, tax-free.

  • At the end of the year, any money remaining in your HSA rolls over to the next year.

  • You own your HSA, so you keep the funds even if you change jobs or health benefits or insurance plans.

  • You can withdraw money directly from your HSA using your debit card or checks to cover qualified expenses. Or, you can allow the account to grow over time and use it to help pay for future health-related expenses – like long-term care, insurance premiums, COBRA premiums, and certain retiree expenses.

10. What are the 2022 HSA limits?

In 2022, the annual maximum contribution is $3,650 per individual and $7,300 per family regardless of the HDHP deductible. If you do not contribute the annual maximum amount to your HSA in any year, you have until April 15th (or whenever you file your taxes, whichever is earlier) of the following year to make additional contributions up to that maximum. You may contribute for a full year to the HSA, even if you join mid-year, provided that you continue to be eligible for HSA contributions by being enrolled in HDHP coverage for a full 12 months. Failure to maintain HDHP coverage may result in income tax and a 10% additional tax penalty on contributions made. These limits will be adjusted for inflation in future years.

Disclaimer: This information is not legal or tax advice. It is also not a substitute for checking your plan documentation. If you have questions or concerns about FSA/HSA qualified expenses or how to get the most out of your FSA/HSA, don’t hesitate to ask your plan administrator for more information or consult with a legal or tax professional.

11. What expenses can I pay for with my HSA?

Your HSA can be used to pay for most “qualified medical expenses,” as defined by IRS Code 213(d) (See IRS Publication 502 for more details). These expenses include, but are not limited to, medical plan deductibles, diagnostic services covered by your plan, over-the-counter drugs, LASIK surgery, and some nursing services. You can also use HSA dollars for COBRA premiums and health premiums if you are unemployed. When you reach age 65, you can use the HSA to purchase any health insurance other than a Medicare supplemental policy. You may not, however, continue to make contributions to your HSA once you are enrolled in Medicare.

12. What over-the-counter (OTC) medicines and drugs are FSA/HSA eligible?

These items typically require a valid prescription from your doctor in order to be FSA/HSA eligible. Some items, like allergy, sinus, cold and flu products are now eligible for purchase without a prescription.

  • Acid controllers

  • Acne medicine

  • Aids for indigestion

  • Allergy and sinus medicine

  • Antidiarrheal medicine

  • Baby-rash ointment

  • Cold and flu medicine

  • Eye drops

  • Feminine antifungal or anti-itch products

  • Hemorrhoid treatment

  • Laxatives or stool softeners

  • Lice treatments

  • Motion sickness medicines

  • Nasal sprays or drops

  • Ointments for cuts, burns, or rashes

  • Pain relievers, such as aspirin or ibuprofen

  • Sleep aids

  • Stomach remedies

13. What OTC supplies are FSA/HSA eligible?

These items usually do not require any documentation from your doctor in order to be FSA/HSA eligible.

  • Bandages (adhesive or elastic)

  • Braces and supports

  • Catheters

  • Condoms

  • Contact lens solution and supplies

  • Crutches

  • Dentures and denture adhesives

  • Diagnostic tests and monitors

  • Elastic wraps

  • Feminine hygiene products

  • First aid supplies

  • Insulin

  • Ostomy products

  • Pregnancy tests

  • Reading glasses

  • Walkers, wheelchairs, or canes

Disclaimer: Keep in mind that the list of approved FSA/HSA items is maintained by the IRS and may change at any time. This list provided by AuBurn Pharmacy - Lebo is not a substitute for checking your plan documentation. If you have questions or concerns about FSA/HSA qualified expenses or how to get the most out of your FSA/HSA, don’t hesitate to ask your plan administrator for more information.