Are you paying too much for health care? Find out here.
Are you paying too much for dependent day care? Find out here.
Brand new to the FSAs this year? Read this.
MNPS offers two flexible spending accounts (FSAs) — a Health Care FSA and a Dependent Care FSA — that let you set aside tax-free money from your paycheck to pay for many common health and dependent care expenses. The FSAs are administered by Cigna.
How FSAs work
With FSAs, you can set aside tax-free money from your paycheck to pay for out-of-pocket expenses like deductibles, copays, coinsurance and childcare. You pay less for these expenses because the money is not taxed when it is deducted from your paycheck or when you use it to pay for eligible expenses. You can contribute to one or both of the FSAs. You do not have to be enrolled in the medical plan to participate.
You can contribute $240-$3,200/year (2024 IRS limit) to the Health Care FSA. And/or you can contribute $240-$5,000/year to the Dependent Care FSA. You must re-enroll in the FSAs every year (during annual enrollment for the upcoming calendar year), even if you wish to keep your same contribution.
Eligible FSA expenses
Generally, eligible health care expenses are those considered tax-deductible by the IRS but not covered by an insurance plan. Examples include:
Medical and dental deductibles, copays and coinsurance
Vision and hearing care expenses
Prescription drug copays
Diabetes and medical supplies
Weight-loss programs if prescribed by a doctor for a medical condition
Certain over-the-counter drugs if prescribed by a doctor (Under the CARES Act, the prescription requirement has been waived)
Smoking cessation programs
Eligible dependent care expenses include only those for the actual care of a dependent, not costs for education, supplies or meals, unless those costs cannot be separated. Examples include:
Day care expenses for your children under age 13
Dependent care for a disabled spouse, child or a tax-dependent relative or household member who depends on you for at least half of his/her support
Before- and after-school care (if not included in tuition)
Dependent care expenses are eligible for reimbursement if they meet the following criteria:
The annual amount submitted for reimbursement does not exceed the lesser of your or your spouse’s income.
The expenses are necessary to enable you to work. If you’re married, the IRS requires both you and your spouse to be employed to be eligible for reimbursement, unless your spouse is disabled or a full-time student at least five months of the year.
Your payments are not made to a person you claim as a dependent.
If the services are provided by a dependent care center that provides care for more than six individuals (other than a resident of the facility), the center must comply with all state and local laws.
Note: When filing your federal income tax return, you will be required to supply the name, address and taxpayer identification number of the dependent care provider.
Estimate how much you think you will spend on health care and dependent care (separately) during the year.
Decide how much to contribute to each FSA. Your annual election to each FSA will be prorated and deducted from your paycheck on a pre-tax basis. Be careful not to contribute more than you expect to spend in a given calendar year, up to maximum contribution limits.
Pay eligible expenses using one of the following options:
Use your debit card. For eligible health care expenses, you can use your FSA debit card. It contains your Health Care FSA balance and works like cash at any vendor that accepts FSA debit cards. Be sure to save your receipts in case Cigna later asks you to substantiate a claim. (New enrollees receive a debit card in the mail. Current enrollees generally use their FSA debit card for a couple of years and it is reloaded with their new contribution election each year.)
File a claim. Pay for the eligible expense and then submit a claim form along with your receipts to Cigna. See “Filing claims” below.
For the Health Care FSA, you may be reimbursed for eligible expenses up to your plan year election (as long as the expenses are incurred during your period of coverage). For the Dependent Care FSA, you may only be reimbursed for eligible expenses up to your current account balance.
Because FSAs offer tax advantages, the IRS places certain restrictions on these accounts:
Use it or lose it
Be careful not to overestimate your expenses for the calendar year. You must use all the money in your Dependent Care FSA within this timeframe; the IRS requires that any money left in this account at year-end be forfeited. Your Health Care FSA offers a grace period to help you avoid the IRS “use it or lose it” rule. You can continue to incur health care expenses until March 15 of the following year, file claims and get reimbursed until June 15. So if you overestimate the amount you put in your Health Care FSA, you can use the funds in the next calendar year, before they are forfeited.
If you participate in both FSAs, you cannot transfer money between your two accounts or use money in one to pay expenses for the other.
Dependent Care FSA vs. tax credit
You may use the Dependent Care FSA or the Child and Dependent Care Tax Credit, but not both. Talk to your financial advisor to determine which is right for you.
Health Care FSA vs. claiming expenses on a 1040
Unless your itemized medical expenses exceed 7.5% of your adjusted gross income, you cannot claim them on your IRS Form 1040. But you can save taxes by paying for your uninsured, out-of-pocket medical expenses through a tax-free Health Care FSA.
No contribution changes
Once you decide how much to contribute to each account, you cannot change it until the next plan year, unless you experience a qualifying life event.
You have until March 15 to submit claims for Dependent Care FSA expenses incurred in the plan year.
Your Health Care FSA offers a grace period to help you avoid the IRS “use it or lose it” rule. You can continue to incur health care expenses until March 15 of the following year, file claims and get reimbursed until June 15. So if you overestimate the amount you put in your Health Care FSA, you can use the funds in the next calendar year, before they are forfeited.
Claim forms and instructions for filing claims are available at myCigna.com. You will receive a check or direct deposit for the amount of reimbursement you requested.
For more information
For more details about the FSAs, call Cigna Customer Service at 1-800-Cigna24 (1-800-244-6224). Once enrolled in an FSA, visit myCigna.com to access account information, claim status, claim forms and answers to general questions.
Flexible spending accounts are a great way to cut your out-of-pocket health and dependent care expenses. Set aside pre-tax money from each paycheck based on how much you think you’ll spend throughout the calendar year. Then use this tax-free money to pay for out-of-pocket expenses not covered by insurance. But remember, you must re-enroll every year to continue participating in the FSAs.