One of the most overlooked benefits available to government employees is the FSAFEDS, the government program for flexible spending accounts, or FSAs. When you enroll in an FSA, you can save money on essential health care and dependent care expenses while reducing their tax burden. However, only a fraction of qualified government employees take advantage of this powerful tool, meaning many feds are ignoring potential savings.
What is a Flexible Spending Account (FSA)?
by Brian Swerdlow
A Flexible Spending Account is a specific account that allows you to set aside pre-tax dollars to cover eligible health care and dependent care expenses. The FSAFEDS program offers two types of FSAs:
- Health Care FSA (HCFSA) – You can use Health Care FSA (HCFSA) as a way to cover out-of-pocket medical, dental, and vision expenses.
- Dependent Care FSA (DCFSA) A DCFSA lets you set aside money for eligible dependent care expenses, such as daycare or elder care.
FSAs offer federal employees the chance to shelter certain expenses from taxes. This feature means they can use pre-tax money to pay for necessary services and products. This provides substantial savings—typically around 30% on eligible expenses.
How Does an FSA Work?
FSAs are set up annually. During the Federal Benefits Open Season, which occurs from mid-November to mid-December, employees can enroll or re-enroll in an FSA for the following year. New federal employees, or those newly eligible, have 60 days after their start date to sign up. However, it’s important to note that enrollment does not carry over year-to-year, so participants must re-enroll each year.
Once enrolled, participants choose how much money they want to contribute to their FSA, with the minimum being $100.
In 2024, the contribuion limit is $3,200 for health care expenses. Contributions are automatically deducted from paychecks before taxes, reducing taxable income. In 2025, The Flexible Spending Account (FSA) limits for health care are projected to increase to $3,300 for the annual maximum plan contribution and $660 for the maximum rollover limit. These increases are due to the anticipated increase in average C-CPI-U for the year, which is estimated to be 2.7% to
Key Benefits of Having an FSA
- Tax Savings: Tax advantages are perhaps the most significant benefit of an FSA. Since you make FSA contributions with pre-tax dollars; contributions reduce your your taxable income For example, if a federal employee earning $50,000 contributes $2,000 to an FSA, they will save approximately $600 in federal taxes. That’s an extra $600 in your pocket simply for thinking ahead and using an FSA to cover routine expenses.
Cover Out-of-Pocket Health Care Costs: Many medical expenses are not covered by insurance. FSAs can help you pay for those expenses, including copayments, coinsurance, deductibles, and even charges above “customary and reasonable” limits. FSA money covers expenses like dental work, vision care, and mental health services are prevalent uses for FSA funds. The CARES Act of 2020 expanded the eligible expenses category. For example, eligible expenses now include over-the-counter medicines without a prescription.
Dependent Care Savings: For employees with young children or elder care responsibilities, the Dependent Care FSA can be a lifesaver. Daycare, after-school care, and elder care services are all eligible expenses. Dependent care savings can significantly ease the financial burden on families while offering tax benefits.
- Carryover Benefits: One of the common concerns with FSAs is the “use it or lose it” rule, which requires participants to spend their FSA balance within the plan year. However, starting in 2024, employees can carry over up to $640 of unused FSA funds into the next year as long as they remain enrolled. This carryover helps mitigate the risk of losing money and gives more flexibility in planning for healthcare costs.
Planning Your Contributions
Careful planning is critical to getting the most from your FSA. Since you cannot adjust your FSA contributions mid-year unless you experience a qualifying life event, you’ll need to estimate your expenses for the year. In your estimate, be sure to include regular, predictable costs like maintenance medications, routine dental checkups, and annual eye exams. When you aside the right amount, you can maximize your tax savings and ensure that foreseeable expenses are fully covered.
For employees in high-deductible health plans (HDHPs), there’s also an option to enroll in a Limited Expense Health Care FSA (LEX HCFSA). This account is designed specifically to cover dental and vision expenses, which FEBH does not reimburse. Even if you already have a Health Savings Account (HSA), a LEX HCFSA can help you save on these specific costs.
Why Aren’t More Employees Taking Advantage of FSAs?
Despite the demonstrable financial benefits, only about one in five federal employees enroll in an FSA each year. Such unwillingness to enroll results in four out of five government employees missing out on potential savings. The most common reason employees cite for not enrolling is the fear of losing unused funds. However, with the $640 carryover provision and the ability to estimate annual expenses carefully, this risk is significantly reduced.
For many federal employees, enrollment hesitancy comes from a misunderstanding of how the program works. Also, employees may believe that their existing health benefits are sufficient. However, even employees with comprehensive health insurance plans may find they have significant out-of-pocket expenses. FSA contributions offer a way to pay for these expenses with tax-free dollars, which can help make routine health care more affordable.
Why You Should Consider an FSA
Every federal employee should consider enrolling in an FSA, particularly if they expect to incur any out-of-pocket medical or dependent care costs during the year. From saving on co-payments and prescriptions to managing child or elder care expenses, FSAs offer a smart, tax-efficient way to handle costs that are part of everyday life.
If you don’t enroll in an FSA, you are essentially paying more for these services than you need to. The average federal employee can save hundreds of dollars each year just by proactively planning and using an FSA to cover expenses they are likely to face anyway. Even those with high-deductible health plans can benefit from a limited FSA that covers dental and vision expenses, providing added flexibility beyond the coverage offered by their standard federal benefits package.
Wrapping it up.
FSAs are a valuable, yet under-utilized, tool for federal employees. An FSA lets you set aside pre-tax money for health and dependent care expenses.
When you participate in an FSA, you can save hundreds—or even thousands—of dollars each year. An FSA benefits you with tax savings, flexibility in covering out-of-pocket costs, and the ability to carry over unused funds. With all these advantages, there’s little reason not to take advantage of this benefit. If you think you could have future health or dependent care expenses, enrolling in an FSA should be a top priority.
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