How FSAs work

​You may use a healthcare FSA (also referred to as medical FSA) to pay for eligible medical, dental, and vision expenses incurred by you, your spouse, and eligible children, that are not reimbursed by any healthcare plan. You may use a dependent care FSA (also referred to as DCAP) to pay for dependent care expenses while you (and your spouse) work, look for work, or attend school full-time.

​Healthcare FSA

Eligible expenses include deductibles, copayments, and copay amounts for doctor's office visits and prescription drugs, and other expenses, such as glasses, contact lens solution, and laser vision surgery. Refer to IRS publication 502 for a more complete summary of eligible healthcare expenses.

Here’s how a healthcare FSA works:

  • You estimate qualified healthcare expenses for the upcoming year.
  • Next, you decide the annual amount to defer from salary — how much to have set aside from each paycheck — to go into the FSA to pay for qualified expenses for the coming year (this amount is called the election).
  • Your employer will automatically deduct the amount you elect for the FSA from your pay on a pretax basis. This amount will be credited to your FSA over the course of the year.
  • When you have a qualified expense, you can either pay with a healthcare Visa debit card (issued by Further after enrollment) or submit the expense through the Further secure member portal for reimbursement from your FSA. You should save all receipts for reimbursements and to validate expenses.
  • Contributions are exempt from federal income and FICA (Social Security and Medicare) taxes. FSA contributions are also exempt from SECA taxes for ministers.
  • The full amount of any elected healthcare FSA contribution is available on the first day of the plan year. You do not have to wait for payroll contributions to accumulate in your account before paying expenses with your healthcare FSA.

Important: The IRS has a use or lose rule for FSAs. Under this rule, you risk losing unused money still in the healthcare FSA at the end of the plan year. This risk is lessened by a $500 rollover feature. Because of this, it is important to estimate expenses carefully each year you enroll in an FSA.

Dependent care FSA

Eligible expenses must be for the care of children under age 13 and older family members unable to care for themselves and who can be claimed as dependents on your federal income tax return. Examples of eligible expenses include in-home childcare, payments to licensed day care facilities, before or after school programs, and adult day care. Refer to IRS publication 503 for a more complete summary of eligible dependent care expenses.

Here’s how a dependent care FSA works:

  • You estimate qualified dependent care expenses for the upcoming year.
  • Next, you decide the annual amount to defer from salary — how much to have set aside from each paycheck — to go into the FSA to pay for qualified expenses for the coming year (this amount is called the election).
  • Your employer will automatically deduct the amount you elect for the FSA from your pay on a pretax basis. This amount will be credited to your FSA over the course of the year. 
  • When you have a qualified expense, you can submit a claim to be reimbursed from the FSA through the Further secure member portal. It is a good idea to save all receipts for reimbursements and to validate expenses.
  • Funds are available to use as they are deposited in the account. You may be reimbursed for eligible expenses up to the amount in your account at the time payment is requested.

Important! The IRS has a use or lose rule for FSAs. Under this rule, you will lose any unused money still in the dependent care FSA at the end of the plan year. Because of this, it is important to estimate expenses carefully each year you enroll in an FSA.

Managing your account

Once you're enrolled in an FSA, you can manage your account, including accessing claims and reimbursement information, through a secure member portal.

Tax considerations

When used for eligible expenses, FSA contributions are exempt from federal income and FICA (Social Security and Medicare) taxes. FSA contributions are also exempt from SECA taxes for ministers. Most states recognize FSA funds as tax-free; however, some do not. You should consult a tax adviser regarding specific state rules.

  • Annual contributions to FSAs are subject to IRS limits. The limits for 2019 are $2,700 for a healthcare FSA and $5,000 for a dependent care FSA.
  • If you are married and your spouse also has a dependent care FSA, your combined annual contribution limit is $5,000 ($2,500 each if you file separate tax returns). 
  • Under IRS rules, you will lose any unused money still in the dependent care FSA at the end of the plan year. Up to $500 in unused healthcare FSA funds at the end of the year can roll over to the next plan year; you will lose any unused funds over that amount at the end of the year under IRS regulations.
  • The IRS and some states allow a tax credit for the same types of expenses that qualify for the dependent care FSA. You cannot claim a tax credit for expenses that are reimbursed from a dependent care FSA and vice versa. 
  • The tax advantages of using a dependent care FSA versus claiming the tax credit vary with individual circumstances. You should consult your financial adviser or tax professional to determine which method is better for your situation.