What is a Flexible Spending Account?
A Flexible Spending Account (also referred to as an FSA) allows you to direct part of your pay, on a pretax basis, into a special account that can be used throughout the year to reimburse yourself for eligible out-of-pocket health care or dependent care expenses.

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 Will I have to pay taxes on the money I contribute to health and/or dependent care FSAs?
No. Contributions used for FSAs are taken out of your salary before federal income taxes, FICA (Social Security and Medicare) taxes and most state and local taxes are applied.

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 How much will I really save in taxes by contributing to an FSA?
Because your contributions are taken out of your salary before you pay federal income, FICA and most state taxes, you may realize a tax savings of up to 40 percent of your FSA contribution amount. This savings will depend on your individual tax bracket and where you live. To estimate your potential tax savings by using an FSA, please use our FSA Advisor at www.aetna.com/fsa and click on "Savings Worksheet."

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 How much should I contribute?
How much you contribute depends on your individual situation. Consider last year's out-of-pocket medical and dependent care expenses, any medical/dental care costs you foresee that might not be covered under your medical/dental plans, and any changes in your family or work situation that might have an impact on these expenses. Plan carefully; you cannot change your designated election amount during the year unless you have a permitted election change event (and your plan permits election changes). Also, remember that funds left over in your account at the end of the year will not be returned to you or rolled over; they will be forfeited.

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 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 can have a health care FSA and take an itemized deduction for medical expenses, but you cannot claim an itemized deduction on your federal income tax return and receive a reimbursement from your health care FSA for the same medical expense. Therefore, you need to consider your individual circumstances to decide whether taking a tax deduction is more beneficial 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 (AGI) can be deducted on your federal income tax return. Many people do not have enough medical expenses to qualify for this deduction. Additionally, if you prefer to take the expenses as a tax deduction, you will not realize the FICA savings.

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 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 (CDCC) - 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 CDCC.

The IRS allows you to claim the CDCC for work-related dependent care expenses when you file your federal income tax return. The CDCC 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, SSN/TIN and amount paid. If you do not provide this information to the IRS you may lose the tax benefits of the FSA. Refer to the IRS website at http://www.irs.gov/ for forms, instructions, publications and more information.

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 What are the risks of participating in a health care or dependent care FSA?
If you do not use all the money that you contribute to your FSA for claims incurred by the end of the plan year (including any employer-allowed grace period), according to IRS rules, your remaining funds are forfeited. This rule is commonly known as the "Use It or Lose It" rule. (Refer to question #8 for additional information.)

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 What if I don't incur enough expenses to use all the money that I deposit into my FSA?
If the amount of your contributions for a plan year exceeds the amount of expenses incurred during the plan year (including any employer-allowed grace period), IRS rules require that the money be forfeited. Careful planning of your yearly expenses and awareness of your account balances and filing deadlines will assist you in using your FSA to its maximum potential.

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 What does it mean to incur expenses?
For purposes of a FSA, the IRS considers expenses to be "incurred" when you are provided with the medical care or dependent care that gives rise to the expense, not when you are formally billed or charged for, or when you actually pay for, the medical or dependent care. Only those expenses you incur within the plan year (including any employer-allowed grace period), and on or after the effective date of your enrollment in the plan, will be eligible for reimbursement.

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 Will participating in an FSA plan affect the amount of my Social Security benefit?
When you participate in an FSA, you do not pay federal taxes on your FSA contributions (including Social Security tax). Social Security benefits are based on your covered earnings; because salary reductions will reduce the amount of your covered 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 retire or become disabled and whether your taxable income exceeds the Social Security maximum wage level. However, if you are concerned or would like more detailed information, call the Social Security Administration (SSA) at 1-800-772-1213.

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 Can I take my FSA plan with me if I change jobs?
No. Your FSA is part of your employment relationship and, therefore, is not portable. However, under a COBRA arrangement, you do have the option to continue to participate in your employer's health care FSA plan. Please note that continuing the health care FSA under COBRA is with after tax contributions. You cannot continue in a dependent care FSA under a COBRA arrangement.

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 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.

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 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 experienced a permitted election change event. Your employer can provide you with a list of permitted election change events that may allow you to revoke or change your election amount.

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