Rick used to offer a Flexible Spending Account (FSA) to employees, but discontinued it after establishing a Health Savings Account (HSA). Now his employees are asking for the FSA, in addition to the HSA, to cover dental and eye care expenses. Can he do both?
Yes, Rick can offer both, but with a catch. He can offer an HSA to employees with high-deductible health plans, who can save pre-tax to pay qualified medical expenses including deductibles, copayments and coinsurance. An FSA can do the same for employees with any health plan, but only when employers do not offer an HSA.
Since Rick does offer an HSA, he can offer a limited-purpose FSA. This tax-qualified savings plan can be used for dependent care expenses, either childcare or eldercare, or for limited healthcare expenses such as dental and eye care.
In 2019, employees can save up to $2,700 in an FSA for health care, which they typically can’t carry over year to year, and families can save up to $7,000 in an HSA, which they can carry over. Other differences exist, so Rick should talk to qualified tax and insurance professionals to learn more.
Client Profile is based on a hypothetical situation. The solutions discussed here may or may not be appropriate for you.