Health and dependent care Flexible Spending Accounts (FSA) FAQs

What is a Flexible Spending Account (FSA)?
An FSA is a special account that lets you set aside money for eligible expenses. The money you put into your FSA is taken out of your before-tax paycheck. That means you'll enjoy a tax savings. You can use the account throughout the year to get reimbursed for eligible health care and dependent care expenses.

Will I have to pay taxes on the money I contribute to health and/or dependent care FSAs?
No. Money you put into an FSA is taken out of your salary before federal income taxes, Social Security and Medicare taxes and most state and local taxes are applied.

How much will I really save in taxes by contributing to an FSA? 
Generally, contributions you make to your FSA are not subject to federal or social security taxes. In most instances, there are no state taxes taken out either. The amount you may save depends upon:

• The amount you put into your FSA
• The tax percentage you would normally pay on that money (tax bracket)

Let's say you want $2,000 taken out of your paycheck this year to put into your FSA. The money you direct to your FSA is taken out of your check before taxes are taken out. That reduces your taxable income by $2,000.

Let's say you normally pay 30 percent in federal, social security and state taxes on your income. In this example, you would enjoy a tax savings of 30 percent of the $2,000. In other words, you could get a $600 tax savings on the $2,000 you directed to your FSA.

This example should not be taken as tax advice. See a tax advisor to seek the best advice for your situation. To see how much you may save, check out our FSA Savings Calculator.

How much should I contribute?
How much you contribute depends on your individual situation. It's good to plan ahead. Consider the medical, vision or pharmacy costs not covered by your health plan. Need dental work? How about contact lenses? Buy allergy medicine, Band Aids, aspirin and sunscreen throughout the year? Ask your employer if your FSA can help cover those over-the-counter items. Also look at family changes that might have an impact on your expenses.

The Internal Revenue Service limits the amount you can put into a dependent care FSA, up to:

• $5,000 per year, if you are married and filing a joint return, or if you are a single parent
• $2,500 per year, if you are married and filing separately.

Estimate what your daycare expenses will be for the year, and give enough from your pay, up to the allowable contribution limit, to cover them. 

The IRS does not limit the amount you can put into a health care FSA. But many employers limit the amount of FSA contributions to between $2,500 and $5,000. Your employer may also set a minimum amount you can contribute. Review your enrollment materials to learn the minimum and maximum amounts you can set aside in your account.

Just remember this: FSA dollars are "use-it-or-lose-it" funds. Account balances cannot be carried over from year to year. If you have any unused funds at the end of the plan year, or at the end of any applicable grace period, those funds will be forfeited. So estimate what you want to direct to your FSA carefully. For help deciding how much to contribute, check out the FSA Savings Calculator.

If I have my out-of-pocket expenses reimbursed from a health care FSA, can I also use those expenses to take an itemized deduction on my federal tax return?
No. You cannot claim an expense reimbursed by your FSA as an itemized deduction on your federal income tax return. You can only deduct IRS-eligible health care expenses your FSA did not reimburse.

Look at your situation to decide whether taking a tax deduction is better for you than using a health care FSA. Keep in mind that only medical and dental expenses that exceed 7.5 percent of your adjusted gross income can be deducted on your federal income tax return. Many people do not have enough medical expenses to qualify for this deduction.

For dependent care expenses, would I save more by taking a credit on my income tax instead of contributing to an FSA?
You can use both a dependent care FSA and claim the Child and Dependent Care Credit--you just can't claim the same expenses for both. If you plan to use both, the IRS requires that you subtract the amount you have directed into a spending account from the expenses you use to calculate the Child and Dependent Care Credit.

The IRS allows you to claim the Child and Dependent Care Credit for work-related dependent care expenses when you file your federal income tax return. Child and Dependent Care Credit amount is calculated by applying a percentage to your total work-related dependent care expenses. The expenses to which this percentage is applied may not exceed $3,000 for one qualifying dependent or $6,000 for two or more.

If you receive any reimbursements from a dependent care FSA, the IRS requires that you complete Form 2441 and attach it to your federal income tax return. Form 2441 requires the following dependent care provider information:

• Name
• Address
• Social security number or tax identification number
• Amount paid

If you do not give this information to the IRS, you may lose the tax benefits of the FSA. Refer to the IRS website at www.irs.gov for forms, instructions, publications and more information.

What are the risks of participating in a health care or dependent care FSA?
FSA dollars are "use-it-or-lose-it" funds. Account balances cannot be carried over from year to year. If you have any unused funds at the end of the plan year, or at the end of any applicable grace period, those funds will be forfeited.

That's an IRS requirement. So estimate what you want to direct to your FSA carefully.

What if I don't incur enough expenses to use all the money I deposit into my FSA?
If you have any unused funds at the end of the plan year, or at the end of any applicable grace period, those funds will be forfeited. That's an IRS requirement. Use your FSA to its potential. Plan carefully and know your balances and filing deadlines.

What does it mean to incur expenses?
 The IRS considers expenses to be "incurred" at the time you receive medical care or dependent care--not when you are formally billed or actually pay for services. Only eligible expenses you incur within the plan year, including any employer-allowed grace period, are eligible for reimbursement.

Will participating in an FSA affect the amount of my Social Security benefit?
When you have an FSA, you do not pay federal taxes, including Social Security tax, on the money you put into it. Social Security benefits are based on your earnings. Because salary reductions will reduce your earnings, your Social Security benefit may be slightly less when you retire or if you become disabled. The impact of your benefit level will depend on a number of factors, including

• The length of time between now and when you qualify for Social Security, and
• Whether your taxable income exceeds the Social Security maximum wage level

Call the Social Security Administration at 1-800-772-1213 for more information.

Can I take my FSA with me if I change jobs?
Under the federal act known as COBRA*, you have the option to continue participating in your employer's health care FSA. If you choose to continue a health care FSA under COBRA, your contributions must be paid with after-tax dollars. You cannot continue in a dependent care FSA under COBRA.

If I underestimate my dependent care FSA contributions, can I use money from my health care FSA to make up the difference?
No. You cannot transfer money between accounts.

Can I change my election or stop contributing money to my FSA at any time during the plan year?
Federal regulations state that once you have enrolled in an FSA, you cannot change your election amount unless you have a qualifying life event. Your employer can give you a list of permitted change events.

Do the funds I put into my FSA earn interest?
No.  FSAs do not earn interest.

Is there a way to get my account information at any time?
Yes. Log on to Aetna Navigator®, our self-service member website. It's available 24 hours a day, 7 days a week.

No computer? Call Aetna Voice Advantage®, our interactive telephone system. As you talk, Aetna Voice Advantage determines your reason for calling. It then helps guide you to the information you need in a clear, conversational way. Get recent FSA account activity, account balances and more, 24 hours a day, 7 days a week.

How do I show an FSA debit card expense is valid when a receipt is required?
You need to show:

• Your Aetna Debit Card Unsubstantiated Transaction Summary. We mail the summary to you monthly, or
• Your debit card transaction history. You can get your history online by logging onto your secure Aetna FSA debit card account at www.aetnafsadebitcard.com. You will also need one of the following:
• Explanation of Benefits (EOB) - An EOB is sent to you by your health plan. It shows your out-of- pocket expense and the amount your health plan has paid.
• Itemized bill - A receipt from your health care provider showing the date of service, amount and nature of the expense. The receipt must include the health plan's payment. We cannot accept your receipts until the health plan has paid its portion.
• Orthodontia contract - When submitting your first orthodontia information, you must send the orthodontia contract from the orthodontist. The contract must include:
  • Initial fee charged
  • Estimated insurance payment
  • Initial start date
  • Duration of treatment
  • Proof of partial or full down payment.

Future service dates cannot be submitted.  IRS guidelines require services to take place before you can be reimbursed.  A reimbursement request for a service that will occur in a subsequent plan year will be returned to you for resubmission in that plan year.

If documentation or repayment is not received by the end of the year in which the transaction occurred, you will generally be issued an IRS Form 1099, reporting this amount as income to you.
Mail or fax your paperwork to:

Aetna FSA
PO BOX 4000
Richmond, KY    40476-4000
FAX: 1-888-238-3539 (1-888-AET-FLEX)

What is an IRS Form 1099?
An IRS form 1099 is used by taxpayers to report financial information to the IRS. Money paid from an FSA for expenses that cannot be proven as FSA-eligible, must be returned to the FSA. If documentation or repayment to your FSA is not received by the end of the year the transaction took place, you may receive an IRS Form 1099, reporting this amount as taxable income to you.

Can I change the amount I put into my spending account later in the year?
The IRS requires that your spending account elections stay in effect throughout the full plan year. Once your yearly election is made, you cannot change it unless you have a qualifying life event.
Here are examples of qualifying life events that allow FSA election changes during the year:

• Marriage
• Divorce
• Birth or adoption of a child
• Death of a spouse or child
• Termination of your spouse's employment
• Commencement of your spouse's employment

Qualifying life events may vary by employer.

What is an eligible expense under the traditional health care FSA?
Examples of eligible health care expenses include:

• Deductibles, copays and coinsurance
• Eye exams, eyeglasses and contact lenses
• LASIK surgery for vision correction
• Hearing exams and hearing aids
• Lab fees
• Chiropractic treatment
• Dental and orthodontic care

Prescription drugs and eligible over-the-counter health care items may also be included. But not all plans offer FSA reimbursements for over-the-counter health care items. Ask your employer if it's part of your plan.

Under IRS rules, health care FSAs are only allowed to reimburse "medical expenses," as defined in section 213(d) of the Internal Revenue Code. Please note, however, that some medical expenses, such as medical insurance, long-term care premiums and long-term care expenses are not reimbursable under a health care FSA.

It's good to consult a tax advisor. IRS Publication 969 is also helpful. It offers guidance on FSA-reimbursable health care costs.

May I use my health care FSA to get reimbursed for expenses my spouse or dependent children incur, even if they are not covered under my medical plan?
Yes, as long as the expenses are eligible under your health care FSA.

I have coverage under my employer's high-deductible health plan and also contribute to a health savings account (HSA). What happens if I elect coverage under my employer's health care FSA?
Generally, coverage under a health care FSA will make you ineligible to make contributions to your HSA. There is an FSA we offer for HSA plan members. It's called a limited health care FSA. Ask your employer if a limited health care FSA is available to you.

Are the expenses of my domestic partner eligible?
Domestic partners can be same gender or opposite gender partners. The expenses of a domestic partner are only eligible under your health care FSA if the domestic partner is your qualifying dependent for federal income tax purposes. A common-law spouse is considered a spouse and not a domestic partner. Federal law does not recognize the union of same-gender partners, even if recognized by their state through a civil union or marriage.

Is mileage in conjunction with a medical visit or appointment a covered FSA expense? 
Yes. Mileage and parking for medical visits are covered FSA expenses. The mileage rate is 24 cents per mile in 2009. You must complete and submit a paper claim form. Enter the total mileage charge (traveled round trip multiplied by .24) as a separate expense on the form. The dates of travel must match the corresponding dates of service.  Be sure to check this rate annually. It is subject to change by IRS regulations.

I had an FSA account with my prior employer and I noticed that your list of covered expenses doesn't include a particular item. Why is that?
FSA plans do not have to reimburse everything the IRS allows. It is the choice of the employer or plan sponsor to decide what IRS-approved services or items they will allow to be reimbursable under an FSA plan.

Are orthodontic services, such as braces, eligible for FSA reimbursement?
Orthodontia services may be reimbursed by your FSA. Check your employer's plan documents for details on how your health care FSA plan reimburses for orthodontic care.

If I have someone come into my home to take care of my children instead of using a day care facility, do these expenses qualify for a dependent care FSA?
Yes. If the services are necessary in order for you (or, if you are married, you and your spouse) to work, you can include payments made to a babysitter or companion in or outside your home. Expenses will also qualify if you work and your spouse is a full-time student or is mentally or physically incapable of self-care. However, you cannot be reimbursed for payments made to:

• Your spouse
• A parent of your qualifying child
• Your child under age 19, even if that child is not your dependent
• Any person you claim as a dependent on your tax return.

How much can I contribute to a dependent care FSA?
If you are married and filing a joint tax return, then you and your spouse are allowed to contribute up to the lesser of $5000 or the earned income of the lower-paid spouse. For example, if one spouse had earned income of $4,500 for the year and the other spouse's earned income was $25,000, they can only contribute up to $4,500 to a dependent care FSA.

If you are married and file separately, you and your spouse are each allowed to contribute up to the lesser of $2,500 or your respective earned incomes.

If you file as single or as head of household, you can make annual contributions up to the lesser of $5,000 or the amount of your earned income.

Just remember that only the custodial parent may participate in a dependent care FSA. See the next question for more information.

I am a divorced parent. May I establish a dependent care FSA for child care expenses even if my ex-spouse has already done so?
Yes, if you are the custodial parent. This is true even if the non-custodial parent claims the dependency exemption for that child. In general, the custodial parent is the parent with whom the child lives for more than 50% of the year. The non-custodial parent may not participate in a dependent care FSA because the IRS takes the position that dependent care expenses are not necessary for the non-custodial parent to be gainfully employed.

Can I use the dependent care FSA for elder care? What if my elderly parent remains in his/her own home or a nursing hone but is still my dependent?
You can use the dependent care FSA for elder care expenses so that you (or if you are married, you and your spouse) can work. To claim the expenses:

• Your parent must qualify as your dependent under the tax rules. Please see IRS Publication 503 at www.irs.gov for specifics.
• Your parent must be physically or mentally incapable of self-care.
• Your parent must reside in your home for at least half of the year.
• Your parent must usually spend at least eight hours a day in your home.

Can I get reimbursed from my dependent care FSA as soon as I pay my child care bill?
Under IRS guidelines, you can only be reimbursed for dependent care that has already taken place. Also, you can only be reimbursed for the amount that you have already contributed to your dependent care FSA. Unlike the health care FSA, the full amount of your dependent care election is not available January 1.

For dependent care expenses, would I save more by taking a credit on my income tax instead of contributing to an FSA?
You can use both a dependent care FSA and claim the federal Child and Dependent Care Credit. You just can't claim the same expenses for both. If you plan to use both, the IRS requires that you subtract the amount you have directed into a spending account from the expenses you use to calculate the tax credit.

The IRS allows you to claim the tax credit for work-related dependent care expenses when you file your federal income tax return. The tax credit amount is calculated by applying a percentage to your total work-related dependent care expenses. The expenses to which this percentage is applied may not exceed $3,000 for one qualifying person or $6,000 for two or more.
If you receive any reimbursements from a dependent care FSA, the IRS requires that you complete Form 2441 and attach it to your federal income tax return. Form 2441 requires the following dependent care provider information:

• Name
• Address
• Social Security Number or tax identification number
• Amount paid

If you do not provide this information to the IRS you may lose the tax benefits of the FSA. Visit www.irs.gov for forms, instructions, publications and more information.

What is the purpose of a limited health care FSA?
A limited health care FSA is a special pretax account that can be used with a health savings account (HSA). It can help you meet the deductible of a high-deductible health plan. While helping to meet your deductible, a limited FSA can only reimburse for dental, vision and preventive care expenses. Meet your health plan deductible, and if your plan allows it, you can get reimbursed for all FSA-qualified health care expenses - just like a standard health care FSA.

What is an eligible expense under the limited health care FSA?
Before you meet your health plan's deductible:
Your limited health care FSA reimburses only for certain expenses, including:

• Dental care and orthodontia, such as fillings, X-rays, braces, caps and mouth guards
• Vision care, including eyeglasses, contact lenses, solutions and supplies and LASIK eye surgery
• Preventive care not covered under your health plan, such as vaccines, flu shots and diagnostic tests.

Prescriptions and over-the-counter items are reimbursable only for dental, vision and preventive care.

After you meet your health plan's deductible, you will be reimbursed for all FSA-qualified health care expenses. That's right. Meet your deductible, and your limited health care FSA works like a standard health care FSA. See our qualified health care expenses list. Your after-deductible reimbursements are not limited to dental, vision or preventive care.

All expenses must be qualified medical, vision, pharmacy or dental benefit expenses as defined in Section 213(d) of the Internal Revenue Code.

Are all transportation benefits paid under one account?
No. There are actually funded two separate accounts - transit and parking. A transit account is for certain expenses incurred traveling to and from work. A parking account is for work-related parking expenses.

I participate in a car pool to get to work. Is that a covered expense?
No. A car pool is not an eligible transit expense.

Is mileage a covered expense?
No. Mileage is not a covered work-related expense.

Is the cost of gas to and from work a covered expense?
No. Gas is not a covered expense.

What are the 2009 monthly limits for a parking or transit reimbursement account?
For 2009, the monthly limits are $230 for parking and $230 for transit ($230 for transit effective March 1, 2009). The IRS adjusts this amount for inflation each year.

How do I submit my FSA expenses?
Log on to Aetna Navigator®, our self-service member website. You will find the FSA claim form you need. Instructions are noted on each form.

If you have a medical, dental or prescription drug plan:
Submit your Explanation of Benefits (EOB) with your completed claim form. An EOB is typically e-mailed or mailed to you after we process a claim. If your plan covered at least part of your expense, your EOB is the only documentation needed.

If you do not have a medical, dental or prescription drug plan:
Submit the itemized receipt or statement from your doctor, dentist, pharmacist or other health care professional. The receipt or statement must clearly state your responsibility for the expenses. It must also include:

• Patient's name
• Name and address of health care provider
• Service date(s)
• Type of service
• Amount charged

If you are submitting an Over-the-Counter Health Care Reimbursement:
Complete a Flexible Spending Account OTC (Over-the-Counter) Health Care Reimbursement form. Send the form with an itemized receipt for each eligible over-the-counter item you purchased.

Is there a minimum claim amount I can file?
Yes. Your employer will set a minimum FSA payment amount. All claims filed in amounts less than the minimum amount will be pended until the minimum is reached.
There is no minimum with our pharmacy plan Aetna AutoDebit^SM feature.

What happens if I submit a claim for an amount greater than my health or dependent care FSA balance?
Submit a claim for your health care FSA. You will be reimbursed up to the full amount of your annual election. That will happen regardless of the amount of money that has been deposited into your account. Contributions will continue throughout the year, and claims will continue to be paid until your total fund amount is gone.

Dependent care claims are paid a little differently. If you submit a claim and your balance is less than the amount of the claim, you will only be reimbursed for the amount of money available in your account. The remainder will be reimbursed once money is deposited into your dependent care FSA.

How quickly will my claims be processed?
For streamlined claims where Aetna is the medical insurance carrier, turnaround time is within 24 hours. For streamlined claims that Aetna manages for another carrier, the claim is paid within 24 hours after we receive the claim. Paper claims are processed in 5 to 7 days.

Can I request reimbursement from my FSA for services I receive before the plan year begins if I am not billed until after the plan year starts?
No. According to IRS guidelines, a qualified expense is incurred at the time the service is given, not when you are billed, charged or actually pay for the service.