If you have health insurance through your job, you can open a Flexible Spending Account (FSA) for uncovered expenses. The best part about an FSA is that you can set it aside tax-free. This means that you can save an amount equal to the taxes you would have paid on that money, but do you have to file a Form 5500 for your FSA?
What Is an FSA?
A flexible spending account allows you to have money set aside to cover expenses that your company's healthcare plan does not. This includes deductibles, co-payments, uncovered or partially covered drugs and other healthcare costs. You can use them to cover bandages, crutches, devices like glucose meters and other uncovered medical expenses. Some dental expenses are also covered.
Some employers have the added benefit of providing matching funds for everything that you put away. To file a claim with your employer, you must submit a claim form with proof of the medical expense to withdraw money from the account. Most FSAs work on a reimbursement basis, where you must pay for the expense and then the company will pay you from your FSA savings.
FSAs are limited to $2,750 per year for each employer. If you are married, your spouse can have a $2,750 FSA with their employer, too. One limitation is that you can use the FSA for medical expenses, but you cannot use it to pay for healthcare premiums. You must use the money within the plan year, but some companies give you an extra two-and-a-half months; you can also carry over $550 into the following year.
FSA Taxes for Individuals
According to the IRS, the interest that you earn on FSA savings plans is also tax-free, as is the principal. Medicare recipients are not eligible for an FSA and the tax advantages that it offers. If you have an FSA, you must file Form 8889 with your IRS Form 1040. You must file this form even if you did not make contributions to the FSA that year, but your employer did.
Before tax filing time, you should receive a Form 5498-SA from the trustee of the FSA that gives you the total of your contributions and your employer’s contributions. You will need this to file Form 8889 with your tax return.
One thing to keep in mind is that if you made excess contributions that are over the contribution limits, the amount over the limit is not tax-deductible. If you received a distribution from the account for qualified medical expenses, you must also file Form 8853 with your tax return.
FSA Taxes for Employers
If you are an employer who offers an FSA as a part of your benefits package, you might have to file a Form 5500. If you have 100 or more participants in your plan, you will have to file a form 5500 by the required date. The number includes employees, retirees and COBRA beneficiaries, but it does not include dependents.
If you have fewer than 100 participants, you can file Form 5500-SF, which is a short form. If you are a single-owner business or self-employed, you can file a Form 5500-EZ. Anyone who is required to file any version of Form 5500 must also file a Form 8955-SSA that identifies those who were separated but that had deferred vested benefits. If you need an extension of time, you can file Form 5558.
An FSA is an excellent way to have tax-free money set aside for uncovered medical expenses, but it can make tax filing complicated. IRS Publication 969 contains information about FSA and other tax-favored health plans. You can also consult a tax professional or call the IRS if you need clarification on your circumstances.
- Healthcare.gov: Using a Flexible Spending Account (FSA)
- IRS: About Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information
- IRS: About Form 8853, Archer MSAs and Long-Term Care Insurance Contracts
- IRS: Publication 969 Cat. No. 24216S Health Savings Accounts and Other Tax-Favored Health Plans
- IRS: About Form 8889, Health Savings Accounts (HSAs)
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.