Flexible spending accounts, or FSAs, are tax-advantaged accounts that your employer can set up to help you pay for either health care or dependent care expenses with pre-tax dollars. Your employer does this by withholding the money from your paycheck before taxes and contributing it to your FSA account. There are some limits to how much you can contribute to these accounts and how you may use them.
Dependent Care FSA Background
The dependent care FSA is a separate account that you can use to fund child care expenses. These are expenses that you pay to care for a dependent child under the age of 13, or an older dependent in care for at least eight hours a day who cannot care for himself. The care must also not be provided by another dependent of the account holder. Expenses cannot be prepaid, meaning that they must be paid from the FSA account after the services have been provided.
Dependent Care FSA Maximums
You can contribute to a dependent care flexible spending account up to the IRS maximum of $5,000 per year for a married couple filing a joint income tax return. Married people filing separately can only contribute $2,500 per year maximum. Your employer can set a lower maximum amount for your contribution, if desired.
Health care FSA Background
Health care FSAs are available to help you pay for health-care-related expenses that you would have to pay out of pocket. This can include expenses that are not paid by your health care plan, or doctor's co-pays and deductibles. Many HSA plans provide you with a special debit card that you can use to access your account to pay for covered expenses. All plans allow you to submit receipts to the plan administrator for reimbursement.
Health care FSA Limits
As of 2011, your employer sets the limits of what you can contribute to an FSA. There are no IRS-defined limits on these accounts. Employers commonly limit FSA contributions to $5,000 per year or less. In 2013, new limits on flexible savings accounts take effect with health care reform legislation. The maximum by law you will be able to contribute as of 2013 will be $2,500. That amount will increase annually, depending on a cost of living index.