Flexible spending accounts (FSAs) allow you to set aside pretax dollars to pay for eligible expenses. The IRS determines the expenses that are allowed to be paid through your FSA, called qualified expenses. There are two types of FSAs – healthcare and dependent care – and each is used to reimburse different types of expenses. If your employer offers either or both type of FSAs, enrollment is optional.
The following updates have been made to tax-advantaged accounts, including FSAs, in response to COVID-19.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act removes the requirement that over-the-counter drugs must be prescribed by a physician to be eligible for reimbursement from a healthcare FSA or health savings account. If you have one of these accounts, you may use money in your account to pay for over-the-counter drugs purchased on or after January 1, 2020.
Dependent care FSAs
If, as a result of the pandemic, you are not working, or working fewer hours, or if your care provider/costs change, these qualify as permissible reasons, under current IRS rules, to change your dependent care FSA election.
A healthcare FSA is an account in which you accumulate funds, through pretax pay deductions, for certain medical, dental, vision, and other healthcare expenses not paid by any health plan.
A dependent care FSA is an account where you accumulate funds, through pretax pay deductions, for certain child and elder care expenses while you work or go to school.
You may contribute up to annual limits set by the IRS. Your contribution for the year is prorated and deducted in equal amounts each pay period.
You may elect a healthcare and/or dependent care FSA, if offered by your employer, when you are first eligible and during annual enrollment in the fall. Elections do not automatically renew; you must enroll each year. Participation is effective upon enrollment. You may not enroll retroactively.