Understanding Article 25

Article 25 - The Flexible Spending Account

What is a Flexible Spending Account?

A flexible spending account allows you to set aside part of your salary to reimburse yourself for health care expenses and for dependent care.

What health care expenses can be reimbursed?

There is a long list of expenses which are eligible for reimbursement through your flexible spending account. These are expenses which you probably incur on a regular basis. They include dental treatments (including cleanings), eyeglasses, co-pays for doctor visits, deductibles, prescription drugs, vitamins (requiring a prescription), x-rays, laboratory fees, and physical exams among the common expenses you have to pay during the year. Human Resources has a brochure providing a complete list of reimbursable expenses.

If I pay these expenses anyway, why set money aside and be reimbursed for them?

Because, the money you set aside to be reimbursed for these expenses is tax free. You don’t pay taxes on the money you put into your flexible spending account. This means if you have $1,000 of these types of expenses during the year, you can put $1,000 into your flexible spending account and reimburse all of that $1,000 to yourself. If you take $1,000 in regular salary, that $1,000 will be taxed before you receive it. This will leave you with only $750 (assuming a 25% tax rate) to pay for $1,000 of expenses. Using a flexible spending account saves you money. In this example, you would save $250, but you could save more if you have a larger amount of predictable expenses or if you are in a higher tax bracket.

Can I use the flexible spending account to reimburse myself for dependent care as well?

Yes, you can set aside part of your salary in the flexible spending account to reimburse yourself for payments made to child care centers, family day care providers, baby-sitters, nursery schools, and care-givers for a disabled spouse or dependents who live with you. Those of you with large childcare expenses could easily save $1,000 every year by using the flexible spending account.

How much can be put into a flexible spending account?

Up to $2,262 for health care expenses and up to $5,000 for dependent care expenses.

I am a young faculty member and I can’t afford to have money taken from my pay check and then get reimbursed later. I need the money now.

If you’re young and you’re earning a relatively low salary, you can’t afford not to take advantage of the opportunity to use a flexible spending account. For you, every dollar does count. You are throwing money away by not using the flexible spending account.

OK, so I went to the doctor twice in a month (2 co-pays @ $15) and my two children had their teeth cleaned ($120). How would I get reimbursed from my flexible spending account?

You submit a reimbursement form along with copies of all bills for which reimbursement is being made. You can submit these at any time. Reimbursement checks are sent out around the end of every month.

Isn’t there an easier way than having to fill out a form?

There is also a check box on the enrollment form authorizing automatic claims transfer. This will cause your reimbursement claim to be submitted at the time of your visit to the doctor. Automatic claims, however, do not capture every type of expense you incur, so it will be necessary to review the statement that comes with your reimbursement check to verify which expenses have been reimbursed and which will require you to submit a claim.

I heard you could lose money by putting it into a flexible spending account. This sounds pretty risky.

You must use all the money you set aside to be reimbursed. Any monies left over at the end of the year are forfeited. This means that you should set aside money only for those expenses which are predictable. You should never put money into a flexible spending account to plan for emergencies. In my case, I know that that my family goes to the dentist for cleanings 5 times a year, we buy contact lenses and/or eyeglasses at known intervals, we need particular prescription drugs for which we must pay part of the cost, and we have some predictable doctor visits. All of these things give us a conservative amount that we know we will spend during the year. This is the amount we set aside in the flexible spending account. Usually we have used all of the flexible spending account by the end of October.

Does the college contribute to the flexible spending account?

Yes. Each year the college is obligated (Article 25 – Flexible Spending Account) to give you $762 to cover deductible expenses such as those described above. This appears on your pay stub as FLX CREDIT under deductions on your pay stub. (It shows up as a negative amount because deductions are recorded as positive numbers, so a negative deduction is an addition to your pay.) Currently many of you are simply pocketing this cash. But as I said before, you are pocketing it after taxes have been removed. So you are probably taking home only $500 or so of this money every year. If you used it in a flexible spending account you could use all of it. This gives you more cash to spend every year.

Do I have to use all the $762 in flexible spending; I don’t think I have that many reimbursable expenses?

No. You can choose any amount you like. If you have only $500 of predictable expenses during the year, you can set aside that amount. This will be deducted from your pay in regular amounts over the course of the year. In fact, you may use up all the money in your flexible spending account before it has all been deducted. That’s the way the system works.

Are there any other expenses that can be reimbursed?

Human Resources informed me recently that the IRS will now allow purchases of over-the-counter medicines to be reimbursed through FSA’s. These medicines can now be reimbursed without the requirement of your doctor’s recommendation. These medicines include allergy medications, pain relievers, antihistamines, cough medicines, first aid creams, ointments for muscle/joint pain, sleep aids, and other types of OTC medications. With your doctor’s recommendation, you can also be reimbursed for OTC herbal medicines, fiber supplements, acne treatments, nasal sprays for snoring, vitamins/minerals, and weight-loss drugs. For those who are worried about not using all of the money they have set aside in their FSA, it is now possible to do some end of the year stocking up!

Anything else I should know?

Yes, our members with children have shared with us that summer day camp costs are reimbursable through Flexible Spending. It must be a summer day camp with no overnight stays to be eligible.

If you still have questions, Human Resources has a wonderful brochure explaining how flexible spending works. Or contact the FA Office for assistance.

W. Michael Goho, 2003