Medical FSA: Tax savings for medical costs
A Medical 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 not covered by health insurance. 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, a minimum of $120, up to the annual maximum of $2,750 for 2022. In 2023, the minimum annual contribution will be $120 and the annual maximum will increase to $2,850. Choose this amount carefully because 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 a Spending Account: Medical FSA
The Medical FSA accounts for UW employees are managed by Navia Benefits Solutions, a local company that administers benefits for organizations.
You’re eligible to enroll in an FSA as long as you’re eligible for PEBB benefits. However, you can’t have a Medical FSA if you’re enrolled in a consumer-directed health plan (CDHP) or if you are enrolled in a Limited Purpose FSA.
You can, though, combine a Medical FSA with the Dependent Care Assistance Program (DCAP), which allows you to set aside pretax earnings for child care and eldercare.
When you can enroll
You may enroll in a Medical FSA at the following times:
- 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 and your FSA deductions begin on the first paycheck following January 1.
If you enroll due to a qualifying life event, FSA deductions start and funds become available on the first day of the next month.
How to enroll
View the FSA and/or DCAP – Enroll/Change Contribution Amount(s) User Guide and enroll through Workday. Contact the ISC if you have questions.
Re-enroll in FSA each year
FSAs don’t continue automatically. View the Open Enrollment User Guide and re-enroll through Workday each year during open enrollment, November 1 – 30.
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 not covered by health insurance 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 deduction 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 $2,750 for 2022 and $120 is the minimum. For 2023, the minimum will remain $120, but the maximum will increase to $2,850. The amount you elect will be deducted from your paycheck in equal increments throughout the calendar year.
Using your FSA account
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
You have from January 1 through December 31 to use your Medical FSA funds.
If you have not spent all the funds in your FSA by December 31, and you are still employed and didn’t lose eligibility for the FSA, you may have certain unspent funds “carry over” into the following year without affecting annual maximums.
To be eligible for the automatic carryover:
- You must enroll in either the Limited Purpose FSA or Medical FSA for the following year, or
- Have at least $120 left in your FSA balance.
Unused funds up to $570 will carryover to the next plan year. Any funds above $570 will be forfeited. Any carryover will occur in January.
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. View the FSA and/or DCAP – Enroll/Change Contribution Amount(s) User Guide and make changes through Workday.
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