Flexible Spending Accounts
Ithaca College Plan Provider - PayFlex
A valuable feature of Individual Choice is the flexible spending account (FSA) option. You are not allowed to have a FSA if you are making contributions to a Health Savings Account. A FSA is an individual account set up for you and funded with your excess College benefit credits and/or before-tax dollars.
The tax-effective use of your College benefit credits and before-tax dollars results in a lower cost to you for these expenses. You can establish two different tax-advantaged flexible spending accounts - a health care flexible spending account and/or a dependent care flexible spending account.
Health Care Flexible Spending Account (HCFSA)
You may use this account to pay eligible out-of-pocket medical expenses such as deductibles, coinsurance, copays, orthodontics, vision and hearing costs, and other goods and services that currently qualify as medical deductions for federal income tax purposes. A few examples:
- Eyeglasses, contact lenses, and contact lens solution
- Some over the counter medications
- Dental treatment
- Care deemed medically necessary but not covered under the plan
Because expenses reimbursed from this account are paid with before-tax dollars, reimbursed expenses cannot also be taken as tax deductions or tax credits on your federal income tax.
The 2020 cap of $2,750 will apply to contributions made to health care FSAs.
The 2021 cap of $2,750 will apply to contributions made to health care FSAs.
Dependent Care Flexible Spending Account (DCFSA)
You may also set up an account to pay for your eligible dependent care expenses. You can use the dependent care FSA only for care needed so that you and your spouse can work outside the home. Internal Revenue Code defines eligible costs as those incurred for the care of:
- A dependent child under age 13 or a dependent child of any age who is physically or mentally incapable of self-care and who qualifies as your tax dependent, or
- Someone you claim as a tax dependent because of a physical or mental inability to care for himself or herself, such as an elderly parent or a disabled spouse.
Other requirements to receive reimbursement from a dependent care FSA are:
- You must report the name, address, and Social Security number or other taxpayer identification number of the care provider on your claim form.
- The care provider may not also be claimed as your dependent.
- The reimbursement for dependent care expenses cannot exceed the income of the lower-paid spouse.
The maximum contribution in a calendar year is $5,000. If you are married and file separate tax returns, the maximum dependent care contribution is $2,500 per individual.
Tax Advantages of Flexible Spending Accounts
If you choose to participate, the flexible spending account lets you pay for certain eligible expenses with money reduced from your pay so that it is free from federal, state, and Social Security taxes. Be sure to consult a tax advisor to determine the appropriate tax plan for your situation.
- Tax Credit or Flexible Spending Account: If you have dependent care expenses, you may be eligible for a tax credit on your federal income tax return. You cannot apply the same expenses to both the flexible spending account and this credit. The amount of dependent care expenses funded through your dependent care flexible spending account will reduce, dollar for dollar, any tax credit that may be available to you on your federal return. Consult a tax advisor to help determine which method best meets your financial needs.
- Deciding How Much to Contribute: Before the beginning of each plan year, you must decide how much to deposit in your flexible spending account(s) for the year. In deciding, consider the health-related expenses you routinely incur that are not covered by medical or dental insurance. Also, review the health care options you select for the coming plan year for deductibles, coinsurance, and out-of-pocket maximums.
For the dependent care flexible spending account, review your current year's expenses and anticipate any childcare needs for the upcoming year. You must be able to separate out day care from tuition charges if the child is attending private school. Keep in mind that child care expenses incurred during vacation may not be reimbursed, because they are not necessitated by your employment.
The health care and dependent care flexible spending accounts are completely separate. You have the option of contributing College benefit credits and/or before-tax dollars to either. You are not allowed to transfer money between accounts.
- Estimate Carefully: The IRS requires that you use all of the money contributed to your flexible spending accounts within the plan year and forfeit the unused portions. According to Internal Revenue Service regulations, in some circumstances, claims for a qualified domestic partner may not be allowable expenses. Please contact the flexible spending account claims administrator if you have any questions concerning eligible expenses.
If You Leave Ithaca College
If you terminate employment, retire, go on long-term disability or are on an unpaid leave of absence and you have a balance remaining in your FSA, you may submit requests for reimbursement only for expenses incurred during the time you participated in the plan or continued your contributions under the Consolidated Omnibus Budget Reconciliation Act.
If you die with a balance in your flexible spending account(s), your beneficiary may submit a request for reimbursement for expenses incurred by you or a dependent during the time you participated in the plan.
Forfeiting FSA Contributions
If you have money left in your flexible spending account(s) after the year’s reimbursements have been processed, current federal tax law requires that you forfeit this money. Therefore, you must plan the use of your flexible spending account(s) carefully.
Claims for reimbursement incurred during the calendar year must be received by the FSA plan administrator no later than March 31 of the following year.