Flexible Spending Arrangements

From SmartMedicalConsumer Wiki

From the IRS publication 969 (2008) "Health Savings Accounts and Other Tax-Favored Health Plans"

A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with your employer. No employment or federal income taxes are deducted from your contribution. The employer may also contribute.

For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier.

[edit] What are the benefits of an FSA?

You may enjoy several benefits from having an FSA.

• Contributions made by your employer can be excluded from your gross income.

• No employment or federal income taxes are deducted from the contributions.

• Withdrawals may be tax free if you pay qualified medical expenses. See Qualified medical expenses, later.

• You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account.

[edit] Qualifying for an FSA

Health FSAs are employer-established benefit plans. These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. Employers have complete flexibility to offer various combinations of benefits in designing their plan. You do not have to be covered under any other health care plan to participate.

Self-employed persons are not eligible for an FSA.

[edit] What's new in 2008

Qualified reservist distribution from a health FSA. A special rule allows amounts in a health FSA to be distributed to reservists ordered or called to active duty. This rule applies to distributions after June 17, 2008, if the plan has been amended to allow these distributions. A qualified reservist distribution is allowed if:

1- The individual was, by reason of being a member of a reserve component, ordered or called to active duty for a period in excess of 179 days or for an indefinite period, and

2- The distribution is made during the period beginning on the date of such order or call and ending on the last date that reimbursements could be made for the plan year which includes the date of such order or call.