FSA Rules & Regulations
Flexible Spending Account Rules and Regulations
Flexible Spending Account rules are established by the IRS. You, your employer, and the adminstrator are jointly responsible for knowing and applying these rules. The most important rules pertaining to growing families are:
Growing families have needs to fit FSA rules and regulations like a glove. Often they have lots of predictable medical expenses they are sure will be spent. And when surprised with unexpected hospital bills from a stay in Neonatal Intensive Care (NICU) they can change elections to help save money on these expenses.
Flex Spending Rules - Use it or Lose it
When you contribute pretax dollars to a Flexible Spending Account, you lower your taxable income; therefore, you generate tax savings and increase your spendable income. Any reduction in your taxable pay may also lead to a reduction in your Social Security benefits; however, for most employees, the reduction in Social Security benefits is insignificant compared to the value of tax savings today.
If you contribute dollars to a Flexible Spending Account and do not use all of the monies you deposit, you will lose any remaining balance in the account at the end of the plan year. A very important thing to remember...the rule exists because the IRS has established strict guidelines on plans with tax savings. So estimate carefully the amount you want to contribute to the FSA, and only contribute dollars you're confident will be used before the end of the plan year.
FSA Rules - Qualifying Life Event
A Qualifying Life Event falls into one of the categories below, and allows you to make changes to your annual elections:
Parents should not contribute funds to an FSA just in case this happens. However if your child does need to be confined, FSA rules allow you to increase your contribution. Moving quickly allows parents to save 1/3 or more on these crippling expenses.
Flexible Spending Account Rules - Changing Elections
The latest set of cafeteria plan regulations develops a process for determining if a participant is allowed to make a change in election during the plan year. The two step process is:
FSA Grace Period
Your employer is given the option to allow a two and one half month grace period. The FSA grace period provides extra time during which you can incur qualified expenses, and get reimbursed from a prior plan year contributions.
The grace period softens the impact of the use it or lose it rule. If your FSA plan year ends on December 31st of a given year, you would have until March 15 to experience additional expenses. Any expenses incurred after that time would count towards the new plan year.