FSA: Tax savings for medical costs
A flexible spending arrangement (FSA) allows you to set aside a portion of your salary and use the money to pay for medical costs such as deductibles, prescriptions, coinsurance, dentist visits, vision care, and other expenses. You can use the funds on yourself, your spouse, and your children. The primary benefit of having an FSA is that it reduces your taxes.
You choose how much of your salary goes into your FSA, up to a yearly maximum of $2,500. However, you need to choose this amount carefully. FSAs are “use it or lose it” accounts, and you must spend your entire yearly allotment before the end of the grace period — or you’ll lose your money.
Enroll in an FSA
The FSA accounts for UW employees are managed by Navia Benefits Solutions, a local company that administers benefits for organizations.
You can, though, combine an FSA with the Dependent Care Assistance Program (DCAP), which allows you to set aside pretax earnings for child care and elder care.
When you can enroll
You may enroll in an FSA at the following times:
- During your first 31 days of employment
- During your first 31 days of becoming eligible for PEBB benefits
- During annual open enrollment, from November 1 – 30
- Within 60 days of a qualifying life event, such as a marriage or birth
If you enroll during the open enrollment period, FSA funds become available on January 1.
If you enroll due to a qualifying life event, FSA funds become available on the first day of the next month.
How to enroll
To enroll you need to print and fill-out the enrollment form. When filling it out, you have to specify the dollar amount of your yearly FSA allotment and paycheck deduction. The yearly allotment must be at least $240 and no more than $2,500. To calculate your paycheck deduction, divide your allotment amount by the number of paychecks you receive each year (most UW employees receive 24 paychecks each year).
Re-enroll in FSA each year
FSAs don’t continue automatically. If you’re enrolled in an FSA and want to continue, you must re-enroll each year during open enrollment, November 1 – 30. Re-enrolling is the same process as your initial enrollment: you specify an allotment and paycheck deduction then submit the form.
How FSAs work
If you’ve never used an FSA before, you simply need to know that it’s a way to pay for health costs while reducing your federal tax obligation. The money deducted from your paycheck and put into the FSA isn’t taxed — you don’t pay Social Security, Medicare, or federal taxes on that money.
This makes routine medical costs cheaper. Medical bills, prescriptions, eye glasses, orthodontia, physical therapy, and many other types of medical products and services are eligible FSA expenses.
But before enrolling in an FSA, you need to accurately estimate your medical costs for the calendar year. While you can’t predict all your health costs, many costs — routine dentist visits, for example — are simple to predict using past years as a guide.
Be conservative with your FSA amount if you’re not sure about your costs. You don’t want to have money left over because you’re required to forfeit any unspent funds. And once you enroll, you can’t change your amount until next year (except due to a qualifying life event).
Once you know your FSA amount for the year, you’re ready to enroll. The max amount is $2,500 and $240 is the minimum. The amount you elect will be deducted from your paycheck in equal increments throughout the calendar year.
Using your FSA account
Beginning January 1, you can start spending your FSA funds on eligible medical expenses. (Newly eligible employees and those who enroll due to a qualifying life event may have a different start date). The full amount of your FSA is available immediately; you don’t have to wait for the paycheck deductions to accumulate.
If you weren’t enrolled in an FSA the prior calendar year, you cannot get reimbursement for any health expenses you incurred before December 31.
If you were enrolled in the FSA for the prior year, you can get reimbursed for health expenses incurred before December 31.
Eligible medical expenses
FSA funds cover a wide variety of medical expenses. To learn what’s eligible and what’s not, see the list of eligible and ineligible FSA expenses.
FSA debit card
Traditionally with an FSA, you had to submit a claim then wait for your reimbursement. Now you can pay directly using an FSA debit card that works just like any other debit card — you just swipe it or pay online. Of course, you can use it only for qualified expenses and only at valid merchants. But it makes FSAs a lot more convenient: learn more about the Navia benefits card.
Submit a claim for reimbursement
If you incur a medical expense and can’t use the FSA debit card to pay for it, you have several options for submitting a reimbursement claim. Claims are processed by Navia, and you can submit a claim through your online profile, using the MyNavia mobile app, by sending an email, or by mailing a completed claim form.
Deadline for spending FSA funds
Each year you must use all the funds you’ve allotted to your FSA. Otherwise, you’ll lose your money. The state doesn’t want you to forfeit your money, so when the year’s over, you get a grace period. At the end of the calendar year:
- You have until March 15 to receive reimbursable services
- You have until March 31 to submit any claims to Navia for reimbursement
Qualifying life events for changes or special enrollment
During annual open enrollment, any eligible employee can enroll or re-enroll in an FSA and change their FSA amount for the forthcoming year. To make changes during other times of the year or to enroll during other times of the year, you must experience a qualifying life event.
Once the event occurs, you have 60 days to make a change or enroll. Events that qualify include:
- Marriage or domestic partner registration
- Divorce or dissolved partnership
- Birth or adoption
- Change in employment status
- Change in a child’s eligibility
- Loss of other health insurance coverage
- Legal custody or guardianship of a child
- Disability of a child
- Court order that requires a child to be covered
- Medicaid, Medicare, or CHIP coverage changes
If you’re unsure whether or not an event qualifies, contact Benefits. Events that qualify are defined by the state in the Washington Administrative Code 182-08-199.