Healthcare Flexible Spending Accounts ; image: young woman doing yoga

Benefits “Open Season” Means It Is Time for Employees to Enroll or to Re-Enroll in a Health Care Flexible Spending Account.

FEDZONE Ed Zurndorfer
For all employees, the current benefits “open season” (which runs through December 11, 2023) means that it is time for employees to enroll, or to re-enroll, in a health care flexible spending account (HCFSA) offered through the Federal Flexible Benefits Plan (“FedFlex” program). Employees can elect to participate in the Federal Flexible Spending Account Program (FSAFEDS). Information about FSAFEDS can be obtained with this link.

Why is it Important for an Employee to Enroll in an HCFSA?

As employees evaluate their health care insurance needs for themselves and family members for 2024, most employees are aware that there is no health, dental and vision insurance plan that pays for every type of health, dental or vision expense that an individual and family member may incur during the year. There are always deductibles that have to be met before the insurance pays. There are always co-insurance expenses in the form of a fixed dollar amount or a percentage of the expense (after the deductible has been met) that the individual health insurance plan policyholder must pay, or there are certain health care-related expenses that an insurance plan does not cover.

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A health care flexible spending account (HCFSA) allows employees to be reimbursed for health-care expenses. HCFSAs are funded through voluntary salary reduction agreements with an employer. No employment or federal income taxes, and in most cases state income taxes, are deducted from the employee’s HCFSA contribution. Another benefit of an HCFSA is that the HCFSA owner can use the HCFSA to pay for qualified health-care expenses if the HCFSA owner has not yet contributed the funds to the HCFSA.

Qualifying for the “FedFlex” Program HCFSA

A federal employee can be enrolled in any health insurance plan in order to participate in the “FedFlex” program HCFSA. The employee can be enrolled in a Federal Employees Health Benefits (FEHB) program health plan, in TriCare, or be enrolled in a spouse’s private employer group health insurance plan. The one requirement that a federal employee must meet in order to participate in and contribute to an HCFSA is that the employee must be eligible to enroll in the FEHB program, whether or not the employee is enrolled.

Enrolling in the HCFSA and Making Contributions to the HCFSA

Employees who want to participate and contribute to an HCFSA for 2024 must enroll during the current “open season”. Those employees who currently have an HCFSA during 2023 must re-enroll in order to have an HCFSA for 2024. Federal retirees cannot have an HCFSA. This is not an OPM rule; this is an IRS rule. The reason that a federal retiree cannot participate and contribute to an HCFSA is that all contributions to an HCFSA must be deducted from gross salary. Since a federal retiree does not have a federal salary, no HCFSA contributions can be made.

Employees do not pay federal and state income taxes, Social Security (FICA) and Medicare Part A (Hospital Insurance Tax) on their contributions to their HCFSA. The results are reduced federal and state tax liabilities, but somewhat reduced future Social Security monthly retirement benefits. But the reduced Social Security monthly benefits are small compared to the current year federal and state income tax savings.

HCFSA Enrollment Procedures or Making Changes to HCFSA Enrollment

Employees who want to enroll in an HCFSA for plan year 2024 (January 1 through December 31, 2024) should visit HERE or call 877-FSAFEDS (877-372-3337, TTY line 866-353-8058). Benefit counselors are available Monday through Friday from 9 am until 9 pm Eastern Time.

For 2024, total salary reduction contributions to an HCFSA cannot exceed $3,200, an increase of $150 from the maximum $3,050 allowed during 2023. Minimum contribution to an HCFSA is $100. All contributions to an HCFSA are deducted from an employee’s gross salary. There are no federal agency contributions to an employee’s HCFSA. But the federal government pays all administrative expenses associated with the “FedFlex” program.

How is an HCFSA Funded?

Once an employee elects how much he or she wants to contribute to his or her HCFSA during 2024, the employee’s payroll office will deduct amounts equally over the number of pay dates during 2024. In most agencies, the employees are paid annually over 26 pay dates. The employee’s selected annual contribution will be spread equally over 26 pay dates. The following example illustrates:

Example 1. Jules is a federal employee and during the current FSAFEDS “open season” elects to contribute the maximum $3,200 to his HCFSA during 2024. Starting with Jules’ first pay date in January 2024:

$3,200/26 equals $123.08 contribution per pay date to Jules’ HCFSA

(Note that assuming in 2024 Jules is in the 22 percent federal marginal tax bracket and 8 percent state income tax bracket, Jules’ 2024 federal income tax liability will be reduced by $3,200 times 0.22, or $704, and his 2024 state income tax liability will be reduced by $3,200 times 0.08, or $256.)

Until 2015, by IRS rules HCFSA contributions not spent by December 31sts of the plan year were forfeited. However, since 2015 the IRS has allowed a carryover of unused HCFSA contributions from one plan year to the next. The amount allowed from the 2015 plan year to the 2016 plan year was $500. The $500 limit has been indexed through the years to inflation, and the carryover limit from the 2023 plan year to the 2024 plan year is $610. Any employee enrolled in an HCFSA during 2023 who intends to use any of the maximize carryover $610 carryover to plan year 2024 must re-enroll in the FedFlex program during the current “open season”, whether or not the employee wants to contribute additionally via payroll deduction during 2024.

For the 2024 plan year, the maximum carryover from 2024 to 2025 is $640. To use any of the $640 carryover, an employee enrolled in an HCFSA during 2024 must re-enroll in the FedFlex program during the 2025 “open season”. This is the case whether or not the employee wants to contribute to his or her HCFSA during 2025 via payroll deduction.

Distributions from an HCFSA

Distributions from an HCFSA must be paid only to reimburse the HCFSA owner for qualified medical expenses incurred by the owner or members of the owner’s family during the period of coverage. The HCFSA owner is eligible to receive the maximum amount of reimbursement elected to contribute for that year at any time during the plan year, regardless of the amount the owner has actually contributed via payroll deductions for the year. The following example illustrates:

Example 2. Sharon is a federal employee. During 2023, Sharon elected to contribute the maximum $3,050 to her HCFSA. In May 2023, Sharon’s son started his orthodontic treatment. Total cost for the procedure was $6,000. Sharon’s orthodontist agreed to receive the $6,000 on an installment basis over three years, $2,000 per year. In June 2023, Sharon requested a $2,000 distribution from her HCFSA, even though she had contributed $1,200 year-to-date at that time. Sharon intends to re-enroll in the HCFSA in 2024, contributing the maximum $3,200 for 2024. In early January 2024, she intends to request that $2,000 be distributed from her HCFSA to make the second $2,000 installment payment to the orthodontist. She can do this even though she would not have contributed anything to her HCFSA in early January 2024. She intends to do the same thing in early January 2025.

The HCFSA owner must send the HCFSA administrator a written statement from an independent third party stating that medical, dental or vision expense have been incurred and the amount of the expense. The HCFSA administrator cannot make advance reimbursements of future or projected expenses.

Which Expenses are Eligible for Reimbursement from One’s HCFSA?

Many of an employee’s out-of-pocket health care expenses may be reimbursed by an HCFSA if those expenses are not covered by an employee’s health insurance, such as the FEHB program, or dental/vision insurance, such as the Federal Employees Dental and Vision Insurance Program. To check to see if the expenses are reimbursable, go here. Typical expenses include:

  • Chiropractic services
  • Co-insurance, co-payments and deductibles
  • Dental care including crowns, endodontic services, implants, oral surgery and periodontal services
  • Eye surgery not covered by a FEDVIP or private vision insurance
  • Infertility treatments
  • Over the counter (OTC) items including sunscreen, bandages and hear aid batteries, and
  • Over the counter (OTC) medicines and drugs, including antacids, allergy medicines, cold medicines and pain relievers

Note that insurance premiums (including health, dental and vision insurance, life insurance, long-term care insurance) and temporary continuation of coverage (TCC) are not eligible for reimbursement.

Which Expenses are Eligible for Reimbursement from One’s HCFSA?

The following table summarizes important HCFSA dates and deadlines for 2024:

FSAFEDS Event or Deadline Key Dates
HCFSA Open Season enrollment for 2024 November 13, 2023 – December 11, 2023
2024 benefit period begins January 1, 2024
Last day to submit all claims for the 2024 benefit period April 30, 2025
Last day to submit a qualifying life event for changes that result in an increase in annual election September 30, 2024

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Healthcare Flexible Spending Accounts ; image: young woman doing yoga

Healthcare Flexible Spending Accounts