Flexible Spending Account Administration for Employers
A Flexible Spending Account (FSA) gives employees a pre-tax way to pay for eligible health care expenses while helping employers strengthen their benefits package. Progressive Benefit Solutions helps employers set up, manage, and communicate FSA plans so employees understand how to use their funds and avoid common issues like missed deadlines, ineligible claims, or unused balances.
What is a Flexible Spending Account?
A Flexible Spending Account (FSA) is an employer-sponsored benefit that allows employees to set aside pre-tax dollars to pay for qualified medical expenses. Employees can use FSA funds for costs that may not be fully covered by health insurance, such as copayments, deductibles, and eligible over-the-counter items. FSAs reduce an employee’s taxable income, resulting in potential tax savings throughout the year.
How FSA Contributions and Reimbursements Work
Employees choose an annual FSA contribution amount during enrollment. That amount is deducted from their paychecks on a pre-tax basis throughout the plan year. Employers may also contribute to employee FSAs if they choose to add more value to the benefit.
Health Care FSA funds are typically available at the start of the plan year, even before the employee has contributed the full elected amount. Employees can use an FSA debit card when available or submit claims for reimbursement through the plan administrator.
Why Employees Value FSAs
FSAs allow employees to set aside pre-tax dollars to pay for qualified medical expenses, lowering their taxable income and increasing potential tax savings. These accounts can be used for a wide range of health care expenses, including prescriptions, over-the-counter items, and other out-of-pocket costs not fully covered by a traditional insurance plan.
By planning for known expenses, employees can better manage their annual healthcare budget and reduce unexpected costs throughout the year.
What Expenses are FSA Eligible
FSAs can be used for a wide variety of FSA-eligible expenses beyond what a typical insurance plan might cover. Qualified costs include:
- Copayments, deductibles, and coinsurance
- Prescription medications
- Eligible over-the-counter medications and supplies
- Dental exams, fillings, and orthodontics
- Vision exams, eyeglasses, and contact lenses
- First aid supplies, bandages, braces, and wraps
- Menstrual care products
- Mental health care and therapy
- Medical equipment, such as crutches or mobility supports
- Eligible telehealth services
FSA Contribution Limits and Plan Rules
The IRS sets annual contribution limits. For 2026, the Health Care FSA contribution limit is $3,400. Employers may also allow a carryover of up to $680, depending on how the plan is structured. Some plans offer a grace period instead of a carryover, so employees should review their plan details before the end of the year. Staying informed about yearly changes is key to maximizing tax-free savings and planning for qualified medical expenses.
Key Difference Between FSAs and HSAs
FSAs and HSAs both allow employees to use tax-advantaged funds for eligible health care expenses, but they have different rules.
FSAs are employer-sponsored, do not require enrollment in a high-deductible health plan, and usually have stricter rules for unused funds. Health Care FSAs also give employees access to the full annual election at the start of the plan year.
HSAs are available only to employees enrolled in eligible high-deductible health plans. Funds roll over year to year and stay with the employee if they change jobs.
Speak With a Benefits Specialist About FSAs
How Employers Can Help Employees to Maximize FSA Benefits
Employee education has a direct impact on FSA participation and account usage. Employers can help employees get more value from their FSA by clearly explaining eligible expenses, plan deadlines, reimbursement steps, and any carryover or grace period rules.
Helpful communication points include:
- Reminding employees to estimate predictable expenses before enrollment
- Sharing examples of eligible medical, dental, vision, and over-the-counter expenses
- Sending year-end reminders about remaining balances
- Explaining how to submit documentation for reimbursement
- Clarifying which expenses may require a Letter of Medical Necessity
FAQs About Flexible Spending Accounts
What’s the difference between an FSA and an HSA?
A Flexible Spending Account (FSA) is not the same as a Health Savings Account (HSA). FSAs are employer-sponsored, have stricter limits, and typically follow the use-it-or-lose-it rule. HSAs allow for year-to-year rollover and are only available to individuals enrolled in high-deductible health plans.
Can FSAs be used to pay health insurance premiums?
No. FSA funds cannot be used for health insurance premiums. However, they can be used for many out-of-pocket expenses like copayments, prescriptions, and medical supplies.
What is a Letter of Medical Necessity?
A Letter of Medical Necessity (LMN) is written by a licensed healthcare provider and may be required for certain FSA-eligible expenses like air purifiers, doulas, or other non-standard health-related items. Without it, reimbursement may be denied.
What happens to unused FSA funds?
Unless your plan offers a grace period or carryover, unused FSA funds are typically forfeited at the end of the plan year. This is commonly known as the use-it-or-lose-it rule.
What’s the difference between a Health Care FSA and a Dependent Care FSA?
A Health Care FSA (HCFSA) is used for medical expenses, such as doctor visits, prescriptions, and qualified medical expenses for you and your dependents. A Dependent Care FSA (DCFSA) helps pay for dependent care expenses like daycare, preschool, or in-home caregiver support for children under 13 or dependents with disabilities. Contribution limits and rollover options differ between the two.
Offer FSAs Through Progressive Benefit Solutions
Flexible Spending Accounts (FSAs) help employees save on healthcare expenses while reducing their taxable income, making them a smart addition to any employee benefits package. FSAs support financial wellness and allow for pre-tax spending on a wide range of qualified medical expenses.
If you’re looking to offer FSAs or need help managing an existing plan, Progressive Benefit Solutions is here to help. Our team can walk you through available options and simplify the process for both employers and employees.