Flexible Spending Accounts
FSA Rules Return to Normal for 2023
The normal FSA rules resume for 2023 which means any balance remaining in your HCFSA or DCFSA at the end of a plan year (January 1 through December 31) is forfeited. This is called the “use-it or lose-it rule.” You have a grace period from January 1 through March 31 of the following year to submit claims for eligible expenses incurred during the previous plan year.
Health Care FSA
If you enroll in the Basic PPO or Classic PPO, you can open a Health Care FSA and contribute up to $3,050 tax free from your paycheck to reimburse yourself for out-of-pocket expenses, such as your portion of the medical deductible, prescription drugs and eligible dental and vision expenses. The full amount you elect during enrollment is available, so you can start reimbursing yourself for eligible expenses from this account immediately.
Dependent Day Care FSA
The Dependent Day Care FSA allows you to set aside up to $5,000 if married filing jointly (up to $2,500 if married filing separately) tax free for eligible day care costs for children under age 13 or disabled dependents. This account cannot be used to reimburse health care expenses for your dependents — only to reimburse the cost of day care for your eligible dependents. Day care expenses include nursery schools, day care centers, adult day care centers, in-home providers and before- and after-school care.
You can contribute up to the IRS maximum through payroll deductions. Unlike the Health Care FSA, you can only be reimbursed with money actually in your account. This means you may want to wait before submitting your expenses until you have accumulated enough money in your account.
Please note: The IRS limits the amount highly compensated employees can contribute to the Dependent Day Care FSA. If your annual pay is $150,000 or more, your contributions will be capped at $750 in 2023.
Regardless of your income, consider consulting your tax advisor on how to get the full child care tax credit on your tax return.
Consider a Flexible Spending Account
Watch this video to learn how to manage your account and how FSAs save you money on health care and dependent day care expenses.