Flexible Spending Accounts Overview

Questions and Answers

What qualifies someone as unable to care for themselves?

Being unable to complete a job application.

Having physical or mental problems that prevent self-care. (correct)

Requiring dietary assistance to manage weight.

Being unable to drive a vehicle.

When can changes to a health plan typically be made?

Only after a qualified life event.

After an annual review.

During open enrollment. (correct)

At any time during the year.

Which of the following is NOT considered a qualified life event change?

Income increase. (correct)

Change in marital status.

Employment status change.

Change in dependent care provider.

What is the nature of IRS limits for Dependent Care Accounts?

A family limit adjusted for inflation annually. Signup and view all the answers

What is a High Deductible Health Plan (HDHP) often used with?

Health Savings Accounts (HSAs) or similar accounts. Signup and view all the answers

What is required for an employee's employment status change to qualify as a change in status?

At least a 31-day break in employment. Signup and view all the answers

Why are some individuals considered unable to care for themselves?

They require assistance to prevent self-harm. Signup and view all the answers

Which scenario allows for a change in the health plan outside of open enrollment?

Family medical leave event. Signup and view all the answers

What type of plans do Health Reimbursement Accounts (HRAs) represent?

Contribution healthcare plans Signup and view all the answers

Which characteristic accurately describes HRAs regarding employee taxation?

They are tax-free to employees. Signup and view all the answers

What advantage do employers gain from contributing to HRAs?

Contributions are tax deductible for employers. Signup and view all the answers

How can unused balances in an HRA be treated at the end of the year?

They can be rolled over to the next year. Signup and view all the answers

How do employers usually fund HRAs?

Using employer dollars only. Signup and view all the answers

What is a strategic benefit of coupling an HRA with a high-deductible health plan?

Helps reduce overall health plan costs. Signup and view all the answers

What is a key feature of Flexible Spending Accounts (FSAs)?

They can be used for reimbursing eligible health care expenses. Signup and view all the answers

Which type of Flexible Spending Account is specifically for dependent care expenses?

Dependent Care Account Signup and view all the answers

FSAs are exempt from which of the following taxes?

Federal income, Social Security, and in most cases, state income taxes Signup and view all the answers

What does the 'use-or-lose' rule refer to in the context of FSAs?

Unused funds at the end of the plan year are forfeited. Signup and view all the answers

Which of the following expenses can be paid using an FSA?

Out-of-pocket medical expenses Signup and view all the answers

Under which condition must dependent care expenses qualify for FSA reimbursement?

Care must be for a dependent who can be claimed as an exemption on the employee's tax return. Signup and view all the answers

What happens to the benefits for highly compensated employees in an FSA if the plan favors them?

Their benefits are fully taxable. Signup and view all the answers

Which of the following statements is true regarding FSAs?

FSAs help reduce taxable income for employees. Signup and view all the answers

Who determines the eligibility and contribution limits for Health Reimbursement Arrangements (HRAs)?

The employer Signup and view all the answers

What happens to unused HRA benefits at the end of the year?

They can be rolled over to the next calendar year Signup and view all the answers

Which of the following statements about former employees and HRAs is true?

Former employees can retain access to unused HRAs at the employer's discretion Signup and view all the answers

What is a key feature of HRAs regarding contribution limits?

Employers can set contribution limits based on their policies Signup and view all the answers

What is the primary purpose of balancing the purchasing power of larger and smaller employers in HRAs?

To allow smaller employers to offer competitive health plans Signup and view all the answers

What is the primary function of a Health Savings Account (HSA)?

To save for qualified health expenses. Signup and view all the answers

Which of the following is a requirement to be eligible for a Health Savings Account?

Must not be eligible for Medicare. Signup and view all the answers

What are the current contribution limits for Health Savings Accounts for families in 2023?

$7,750 Signup and view all the answers

What penalty applies to nonhealth withdrawals from an HSA before age 65?

20% penalty. Signup and view all the answers

Which statement is true regarding contributions made by an employer to an HSA?

They do not count towards taxable income. Signup and view all the answers

At what age can an HSA holder withdraw funds for nonhealth purposes without facing a penalty?

65 years old. Signup and view all the answers

What is the contribution limit for an HSA holder aged 55 and older?

$1,000 additional contribution. Signup and view all the answers

What qualifies as a nonhealth expenditure from an HSA?

Home renovations. Signup and view all the answers

Study Notes

Flexible Spending Accounts (FSAs)

FSAs allow salary reduction contributions from employees, supplemented by employer contributions.
Employees can use FSAs for eligible health care and dependent care expenses.
FSAs have annual maximum contributions and operate under a "use-or-lose" rule; unused funds do not carry over to the next year.
Two types of FSAs:
- Health Care Account for out-of-pocket health expenses.
- Dependent Care Account for dependent-related expenses; subject to annual contribution limits.
FSA contributions are exempt from federal income taxes, Social Security taxes, and often state taxes, potentially saving 1/3 in taxes.
FSA benefits for highly compensated employees may not be exempt from federal income taxes.
Eligible expenses include medical, dental, child care for dependents under 13, and care for spouses or dependents incapable of self-care.
Changes to the health plan can be made during open enrollment or due to qualified life events like marital status changes or employment status impacts.

IRS Limits for Dependent Care Accounts

Family limit imposed on annual contributions, which is adjusted annually for inflation.
Even if both parents have accounts, combined contributions cannot exceed the set limit.

HDHPs often paired with MSAs, HSAs, or HRAs to manage medical expenses.

Health Savings Accounts (HSAs)

HSAs help save for qualified health expenses incurred by individuals, spouses, or dependents.
Only individuals covered by HDHPs can contribute to HSAs.
Current contribution limits are $3,850 for singles and $7,750 for families; additional contributions allowed for those aged 55 and older.
Nonhealth withdrawals before age 65 incur a 20% penalty; after age 65, they are taxed but not penalized.

Health Reimbursement Accounts (HRAs)

HRAs are employer-funded accounts to reimburse employees for qualified medical expenses like deductibles or coinsurance.
Contributions to HRAs are tax-deductible for employers and not taxable for employees.
Unused balances can roll over to the following year; no statutory contribution limit exists, but employers set maximums.
Former employees may retain access to unused funds at the employer's discretion, but HRAs do not transfer with employees leaving for new jobs.

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Description

Explore the concept of Flexible Spending Accounts (FSAs), where employees can allocate pre-tax funds for health and dependent care expenses. Learn about the benefits, contribution limits, and the annual 'use-or-lose' rule associated with this type of account.