NEWS
HSA vs. FSA: Which is right for you?
Understanding the Difference Between an FSA and an HSA
Employees can make better decisions during open enrollment if they are aware of the differences between an FSA and an HSA. Both accounts help lower taxable income and out-of-pocket expenses by allowing people to set aside pre-tax money for medical or dependent care expenses. When choosing which fund is best for them, employees need to be aware of the significant distinctions in eligibility, usage, and flexibility.
Check Eligibility First
The first step in deciding which fund to use is to determine if you’re eligible. Only those who are enrolled in a high-deductible health plan (HDHP) that satisfies certain IRS requirements are eligible to open a Health Savings Account (HSA). Insurance options with cost-sharing arrangements, such as copay assistance, usually do not qualify; these plans must be HSA-eligible. It is best to contact the insurance provider if there are questions about your eligibility.
Understand the Benefits of an HSA
An HSA can function as any other investment account, as contributed money can be invested in the bond market or stock market. HSAs are triple tax benefited, meaning pre-tax contributions, tax-free account growth, and tax-free withdrawals for approved medical expenses. After the age of 65, the account can even be used as a retirement fund, as any unused money rolls over from year to year. After that age, qualified medical withdrawals are tax-free, but non-medical withdrawals are taxed as normal income.
Explore the Features of an FSA
A Flexible Spending Account (FSA), on the other hand, can only be obtained through an employer. The Dependent Care FSA (DFSA) and the Health FSA (HFSA) are the two primary forms of FSAs. Qualified expenses covered by an HFSA include dental, vision, and family planning costs. Even though HFSAs can lower taxable income through pre-tax contributions, money in an HFSA usually does not roll over. However, in some cases, a small amount (up to 20%) may be carried over to the following plan year. Therefore, employee contributions should not exceed what they anticipate spending during the year.
Know What DFSA Covers
DFSA accounts cover daycare, babysitting, after-school programs for children under 13, and some forms of in-home or adult day care services for adult dependents. Nursing homes and long-term residential care facilities are not qualified. Since DFSA funds do not roll over, it is recommended to only contribute the amount that is anticipated to be spent during the year.
Be Aware of Contribution Limits
There are annual contribution caps for each account. Contributions to an HSA in 2025 can reach $4,300 for individuals or $8,550 for those with family coverage. An extra $1,000 can be contributed by anyone over 55. The 2025 cap for HFSAs is $3,300, with up to 20% carryover allowance if allowed. The 2025 maximum contribution for DFSAs is $5,000 for each household or $2,500 for each spouse if they are married and filing separately. The amount contributed is decided at the beginning of each year. This amount cannot be changed later in the year unless there is a qualified life event. Qualified life events include change in marital status, change in the number of tax dependents, or if employment changes.
Understand Mutual Exclusivity
It is important to remember that workers are not permitted to make contributions to both an HSA and a Health FSA during the same plan year. However, they can make contributions to both an HSA and a DFSA during the same year, which can save a lot of money for families with dependent care and medical costs.
Make a Strategic Choice
The choice between an FSA and an HSA is different for everyone. It comes down to financial objectives and eligibility. While FSAs can be useful tools for managing predictable expenses within a calendar year, HSAs offer more long-term flexibility and the possibility of retirement savings. Employees will be able to maximize their benefits if they carefully assess their anticipated costs and eligibility for health plans.
How to Ensure a Successful Open Enrollment
Open enrollment is a critical period for employers and employees as it allows individuals to review and select their benefit options for the upcoming year. The benefit plans and options can be daunting for employees and it is important to ensure that employees get the most out of their benefits. Open enrollment is an especially crucial period for employees because, with the exception of a life change, employees are bound to the plans they select. To ensure a successful open enrollment process consider the following:
Start Early: Begin planning for open enrollment well in advance. Set clear timelines and communicate them to employees, allowing ample time to review benefit options, ask questions, and make informed decisions. Early planning helps avoid last-minute rush and confusion.
Communicate with Clarity: Effective communication is key during open enrollment. Provide employees with detailed information about benefit changes, updates, and any new offerings. Use various channels such as emails, newsletters, intranet portals, and informational sessions to ensure employees have access to the necessary information.
Offer Education and Support: Many employees find benefit options confusing or overwhelming. Provide educational materials, such as FAQs, brochures, or videos, to help employees understand their options and the associated costs and benefits. Consider hosting informational sessions or webinars where employees can ask questions and get personalized guidance.
Personalize your Benefits Offerings: Recognize that employees have diverse needs and preferences. Offer a range of benefit options to cater to different demographics and lifestyles. Consider customization options that allow employees to choose benefits that align with their needs. Personalization can increase engagement and satisfaction.
Emphasize Wellness and Wellbeing: Highlight wellness programs and initiatives available as part of the benefits package. Encourage employees to take advantage of these offerings and emphasize the value they bring in terms of physical and mental well-being. Consider offering incentives or rewards for participation in wellness activities.
Seek Employee Feedback: Encourage employees to provide feedback on their experience during open enrollment. Use surveys to understand their satisfaction levels, challenges, and suggestions for improvement.
Communicate Consistently: Open enrollment shouldn't be the only time you communicate about benefits. Throughout the year, provide regular updates, reminders, and educational resources to keep employees informed and engaged. This ensures that employees have a comprehensive understanding of their benefits and encourages them to use them effectively.
Use our Resources: BenefitsAssist offers plenty of resources that are helpful for both employees and employers. These resources highlight important information regarding the different benefits that employees can choose.
By implementing these tips, you can facilitate a smooth and successful open enrollment process, ensuring that employees make informed choices and feel supported in their benefit selections. A well-executed open enrollment process contributes to employee loyalty, satisfaction, engagement, and overall well-being, saving your company time and money.
Form 5500 Filing Tips
Form 5500 is a required annual report filed with the United States Department of Labor (DOL). It is used to report information about employee benefit plans, including retirement plans and welfare benefit plans, to ensure compliance with federal regulations.
The purpose of Form 5500 is to provide transparency and accountability regarding the operation, funding, and compliance of these employee benefit plans. The information provided in the form helps regulatory agencies monitor plan activities, ensure plan assets are properly managed, and protect participants' rights.
The form requires detailed information about the plan, including its name, type, and sponsor's information. It also requires information on plan investments, contributions, distributions, administrative expenses, and participant demographics. In general, the form is due on the last day of the seventh month following the end of the plan year.
Form 5500 is a complex document, and compliance with filing requirements is crucial to avoid penalties and maintain regulatory compliance. Failure to comply with Form 5500 filing requirements for employee benefit plans can have consequences including penalties, fines, and potential legal liabilities. Below are some tips to help ensure a compliant Form 5500 filing process.
Familiarize yourself with the specific filing requirements for your plan type and size. Different plans have different filing thresholds and may require additional schedules or attachments. Review the instructions for Form 5500 and any applicable guidance provided by the regulatory agencies.
Collect all the necessary information and documents required for Form 5500 filing. This may include plan documents, financial statements, participant data, and records of contributions, distributions, and investments. Maintain organized records to streamline the filing process.
Ensure that you are using the correct version of Form 5500 for the applicable plan year. The form may be updated periodically, so use the most recent version from the official website of the DOL.
Accurate and complete information is crucial for Form 5500 filing. Double-check all data, including participant counts, financial figures, and plan details, to minimize errors. Inaccurate or inconsistent information may lead to delays, penalties, or compliance issues.
Carefully review the instructions for Form 5500, as well as any applicable schedules or attachments. Familiarize yourself with the definitions, reporting requirements, and specific instructions for each section. Pay attention to any changes or updates from previous years.
Be aware of the filing deadlines for Form 5500. Plan ahead and allow sufficient time to gather information, prepare the form, and resolve any potential issues or questions that may arise.
Keep copies of the filed Form 5500 along with supporting documentation and attachments. These documents may be required for future audits, inquiries, or regulatory compliance reviews.
Stay up-to-date with any changes or updates to Form 5500 requirements, instructions, or regulations. Regularly check official websites, subscribe to relevant newsletters or publications, and attend industry conferences or webinars to stay informed about best practices and compliance guidelines.
Hire Us! When you become a client of BenefitsAssist we complete your Form 5500 for you. All you have to do is review the information and file it with EFAST. This saves you time so you can focus on doing what your business does best. Contact us to learn more.
BenefitsAssist now offers Lifestyle Spending Accounts
Changes in the world over the last few years have brought more uncertainty to the workplace. As a result, employers want to attract and retain talent, while employees search for employment opportunities that can provide more than just a salary and traditional benefits. Lifestyle Spending Accounts (LSAs) bridge this gap.
What is a Lifestyle Spending Account?
A Lifestyle Spending Account is a unique benefit that gives employees the freedom and flexibility to allocate funds to various aspects of their personal lives. Rather than prescribe how employees should spend their benefits, an LSA allows them to decide what matters most and invest in activities that enhance their well-being.
Employees enrolled in an LSA are allocated funds in their Lifestyle Spending Account. They can use these funds towards a variety of expenses related to their personal well-being and lifestyle. Eligible categories for spending include gym memberships, healthy groceries, family caregiving services, and mental health services.
What are the benefits of an LSA?
Employees can use LSAs for expenses that are not covered by traditional benefits. LSAs can also provide tax advantages for employers. Depending on specific tax regulations, contributions made to LSAs may be tax-deductible for the company.
LSAs boost employee productivity, wellness, and happiness. When employees feel valued and supported, they are more likely to stay with the company for the long term, reducing turnover costs associated with recruitment and training. Engaged employees tend to be more committed to their work, resulting in higher productivity and better customer satisfaction.
LSAs are fully adaptable. Employers fund participant accounts to predefined amounts per employee, set limits and restrict spending to specific types of products and services.
Employers only pay for what employees spend from their LSA. Unused funds are returned to the employer. LSAs may help employers save money by reducing healthcare costs since employees who use an LSA to prioritize their health may be less likely to have medical issues. This may lead to decreased healthcare claims and reduced insurance premiums.
Although LSAs are fairly new to the benefits world, an increasing number of companies are offering LSAs in benefits packages. Employees are placing more importance on company benefits when looking for employment. A Lifestyle Spending Account can help grow the company, save money, and attract top talent. If your company is interested in providing Lifestyle Spending Accounts, please contact us.
Administration announces planned end of emergency declaration regarding COVID-19
On January 30, 2023 President Biden announced the planned end on May 11, 2023 of the emergency declaration regarding COVID-19 - see text below:
This means that the extensions for premium payments regarding COBRA and claims submissions for FSAs and HRAs will expire on July 10, 2023 which is 60 days after the emergency end.
More information about how the end of the emergency affects access to testing and vaccines can be found here: Fact Sheet: COVID-19 Public Health Emergency Transition Roadmap | HHS.gov
American Rescue Plan Act of 2021 provides COBRA subsidies from April 1, 2021 to September 30, 2021 for Assistance Eligible Individuals
The American Rescue Plan Act of 2021 was signed into law on March 11, 2021.
Assistance Eligible Individuals (AEIs) are employees and their families who are or would have been eligible for continuation coverage under COBRA during the months of April 1, 2021 to September 30, 2021. Highlights of the bill include:
An AEI must be or would have been eligible for COBRA due to Involuntary Termination or Reduction in Hours. Other events do not qualify.
An AEI who had an Event on or after October 1, 2019 which would have resulted in possible COBRA coverage will need to be notified by May 31, 2021 of the option to elect the subsidized coverage. Unlike normal COBRA provisions an AEI can have a break in coverage prior to the subsidized coverage.
Plans are subsidized at 100% and coverage includes group Medical, Dental, and Vision
The subsidized coverage is also available to those AEIs covered under state continuation laws rather than federal COBRA law
The subsidized coverage time period cannot exceed the maximum coverage term under COBRA
AEIs must not be eligible for other group health plan coverage or Medicare
Plans must notify AEIs who elect the subsidized coverage a notice of expiration of the subsidy 15 - 45 days before the subsidy expires
COBRA premiums during the subsidized period are paid by the employer to the carrier. Employers will use the Quarterly 941 to be reimbursed for the cost of the subsidy plus the 2% administration fee.
Election of this temporary subsidy affects premium subsidies offered on the Marketplace under ACA
The Department of Labor has a page about the ARPA subsidies here - https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy - it includes FAQs as well and Model Notices.
Consolidated Appropriation Act of 2021 provides optional relief for 2020 and 2021 FSA plans
All of the below are optional and temporary relief and can be added in any combination except that plans cannot have both the grace period and the carryover. The cost to restate the plan is $100 total regardless of any or all of the options chosen. Plan amendments may be retroactive. Any selected changes will be made for both Dependent Care FSA and Health FSA and apply to both 2020 and 2021 where applicable.
A. Mid-Year Election Changes. For any plan year ending in 2021, employees may modify (includes enrollment) their Health FSA and Dependent Care FSA contributions for any reason. Election changes for Health FSAs can be limited to not go below existing contributions or claims. There is no cashout or return of funds and the election is on a going-forward basis so cannot be retroactive. Changes under this scenario can be limited to one time and to apply to a given timeframe such as within the next 30 days. This provision does not apply to insurance elections.
B. 12-month Grace Period. A grace period for a Health FSA or Dependent Care FSA for a plan year ending in 2020 or 2021 may be added and lasts 12 months into the new year. Example: if adding a grace period to a plan that ended December 31, 2020 claims with a date of service through December 31, 2021 can go against the 2020 balance. A grace period assumes that a person is also enrolled in the current plan year.
C. Unlimited FSA Carryover. All unused amounts in a Health or Dependent Care FSA may be carried over after the end of the 2020 plan year. Unused amounts may be carried over after the end of the 2021 plan year and going forward. This rule also applies to Dependent Care FSAs even though carryovers are otherwise not permitted for these accounts. A carryover applies to current employees who are in the plan on the last day of the prior year. Carryover are normally applied in April for plans that end in December to allow closing out of claims.
D. Dependent Care FSA Modification. The Act allows an extra year for children who “aged out” during the ongoing pandemic event. Employers can allow unused Dependent Care FSA amounts for children until they turn age 14, at least through the end of the 2021 plan year.
E. Spend-down of Unused Health FSA Benefits. An employee who stops participating in the Health FSA plan during calendar year 2020 or 2021 may continue to receive reimbursements from unused contributions through the end of the plan year, including any grace period.
New Option to extend claims periods for 2020 and 2021 FSA plans
A new law was signed on December 27, 2020 allowing for the optional extension of claims periods for 2020 and 2021 plan years. Please see Relief bill for 2020 and 2021 FSAs from our software partner Alegeus.
We will e-mail clients in late January 2021 with details about how to add this option at a charge of $100 to restate the plan.
New Optional IRS guidelines for pre-tax plans plus Mandatory deadline extensions
Many of the links below are provided by our software partner Alegeus.
Optional rules for pre-tax plans and FSAs - the following changes are optional and require a plan amendment at a charge of $100 by December 31, 2021 and apply to mid-year changes from January 1, 2020 to December 31, 2020 on a going forward basis. Please also click to download .pdf summary:
Elections - Cafeteria plans - can allow new election to participate in employer health plan if coverage initially denied. Can revoke or change employer health plan coverage with certain conditions.
Elections - FSA - can terminate, make a new election, or change an election for Health FSA, Limited Purpose Health FSA, and Dependent Care FSA. New elections can only be made going forward. No refunds can be issued. Changes to elections cannot result in an election being less than what has been paid out.
Grace Period extension - plans that have a plan year OR a grace period (75 day extension into new year to incur claims) that ends in 2020 may amend the plan to allow employees to incur new claims against that account until December 31, 2020. This grace period extension is available to plans that offer or do not offer a grace period as well as plans that offer a carryover. Note that if your plan ended December 31, 2019 and you did NOT have a grace period then this extension would not be an option since neither the plan year nor the grace period ended in 2020.
Carryover increase - carryover can increase from current $500 to 20% of the IRS annual FSA limit for plan years 2020 and forward. Plan must be amended by December 31, 2020 to apply to 2020 plan year.
Mandatory deadline extensions - The IRS and DOL released rules that effectively extend deadlines for COBRA enrollment and payment as well as health claims filing and appeals. We have updated COBRA letters to provide a link to the guidance.
Under mandatory rules for ERISA-covered Health FSAs, Limited Purpose Health FSAs, and Health Reimbursement Arrangements any plan that has a claims filing deadline (also known as runout period) from March 1, 2020 until 60 days after the to-be-determined end of the COVID-19 national emergency must allow automatic extension for claims filing. This DOES NOT extend the time period for incurring a claim.
For example, consider a plan that ended December 31, 2019 whose runout period ended March 31, 2020. The automatic extension means that participants can file claims with dates of service through December 31, 2019 until at least 60 days after the to-be-determined end of the COVID-19 national emergency. The extension is automatic, mandatory and does not require a plan amendment.
COVID-19 Updates and FAQs
Many of the links below are provided by our software partner Alegeus.
Tax credits for required paid leave - the required sick leave for employees is reimbursable to employers through tax credits. See the blog and the IRS site for how FSAs, HRAs, and HSAs may impact the credit.
FAQs about compliance related to FSA, HRA, and HSA accounts as well as COBRA. Two of the most common questions we have heard are listed below:
If employees are on furlough or temporary leave what happens to the accounts and how does COBRA apply? This depends on if the absence is covered under FMLA or non-FMLA. Under FMLA, benefits must be offered during the absence. Employers can collect premiums for benefits by prepayment, on an ongoing basis, or upon return to work. Some employers may maintain benefits for non-FMLA leave under the same conditions as FMLA (see above).
Some employers might cover the employee’s cost share while on FMLA or non-FMLA leave - for example cover the employee portion of the Health FSA while away so that the FSA can be accessed during the leave. Employers should treat employees equally and specify the policy in writing.
COBRA applies if a person loses coverage due to reduced hours or termination.
Can employees change Dependent Care FSA (DFSA)? The rules for changing DFSA elections are flexible. Examples of situations that allow a change or drop of coverage include change of provider, dropping a provider due to closure, dropping the service due to the child being cared for at home, and initiating coverage.
The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed March 27, 2020 and includes the following changes to tax favored accounts effective January 1, 2020:
FSAs, HRAs, and HSAs can reimburse or pay for Over-the-Counter (OTC) purchases of drugs and medicines without a prescription. Note - merchants should be updating their card systems beginning April 15 to allow cards to be used for these items. Each merchant updates their eligibility list monthly, quarterly or yearly so card acceptance will depend on the merchant. Participants can file manual claims in the meantime.
Menstrual products were added to the list of qualified medical expenses covered by FSAs, HRAs, and HSAs. Note - merchants should be updating their card systems beginning May 15 to allow the card to be used for these items. Each merchant updates their eligibility list monthly, quarterly or yearly so card acceptance will depend on the merchant. Participants can file manual claims in the meantime.
Telehealth services below the deductible will be allowed in HSA-compatible health plans through December 31, 2021.
Due to the federal tax filing and payment deadline extension to July 15, 2020, contributions to Health Savings Accounts (HSAs) are allowed for the 2019 tax year until July 15, 2020.
Families First Coronavirus Response Act - effective no later than April 2, 2020 provides paid sick leave to employees affected by COVID-19. See Department of Labor page for more info.