Franklin & Marshall College offers two different kinds of Flexible Spending Accounts to full-time employees:
- Health Care Flexible Spending Account ($2700 maximum)
- Dependent Care Flexible Spending Account ($5000 maximum)
Flexible Spending Accounts (FSA's) allow employees to set aside part of their paychecks so that they may pay or be reimbursed for future health care or dependent care expenses. Each employee decides how much to contribute to the account, and the portion of his/her paycheck put into an FSA is taken out before paying federal income taxes, Social Security taxes and most state taxes. Employees are provided with a free debit card to provide easy access to the funds set aside in their FSA.
Careful planning is necessary when participating in a Flexible Spending Account. Based upon IRS regulations, any money left in an employee's Health Care FSA as of March 15 of the following year, or an employee's Dependent Care FSA at the end of the calendar year must be forfeited by the employee. Changes to an employee's FSA elections generally cannot be made after the start of the plan year on January 1. Access our FSA Frequently Asked Questions section below, in order to make a more informed decision.
The College's administrator for Flexible Spending Accounts, Highmark, offers many helpful videos to assist you in learning how to use your FSA.
Frequently Asked Questions
What are each of the Flexible Spending Accounts (FSA) for?
- Medical Expense FSA - allows employees to set aside money on a pre-tax basis through salary reduction, and then use these funds to reimburse themselves for their eligible medical, prescription drug, vision, and dental expenses.
- Dependent Care FSA - allows employees to set aside money on a pre-tax basis through salary reduction, and then reimburse themselves for their eligible dependent care expenses. Expenses eligible for reimbursement are those incurred to care for an eligible dependent and to enable the enrolled employee to remain gainfully employed.
How much can I contribute to each of the FlexibleSpending Accounts?
Medical Expense FSA - $2,700 per Plan Year
Dependent Care FSA - $5,000 per Plan Year, or up to $2,500 if married and filing separate tax returns
The amount which may be contributed to the Dependent Care FSA cannot exceed the participant's compensation for the year. If a participant is married and his/her spouse's compensation is less than the participant's compensation, the participant's contribution amount cannot exceed the spouse's income. If an employee's spouse is a full-time student or is incapable of self-care, his/her income is assumed to be:
- $250 per month, if there is one person for whom eligible dependent care expenses are incurred, or
- $500 per month, if there are two or more persons for whom eligible dependent care expenses are incurred.
Am I required to participate in the Flexible Spending Accounts?
No. Participation in Flexible Spending Accounts is optional.
How does a Flexible Spending Account save me money?
Although the participant must pay for medical expenses and/or dependent care expenses, the participant saves money because contributions to Flexible Spending Accounts are exempt from federal and Social Security taxes.
For state income tax purposes, the Commonwealth of Pennsylvania does not exclude contributions under Flexible Spending Plans except for those pertaining to medical expenses. Please note, participants will not pay Social Security taxes on their share of contributions to the Flexible Spending Plan. As a result, the earnings used to calculate Social Security benefits at retirement will not include these payments. This could result in a small reduction in the Social Security benefit the participant receives at retirement. However, savings on current taxes will normally be greater than any eventual reduction in Social Security benefits.
Flexible Spending Accounts do not earn interest during the year.
What do I do to set money aside in a Flexible Spending Account?
Initial Election— College employees are eligible to enroll in the Medical Expense FSA and/or Dependent Care FSA as of the first of the calendar month coinciding with or following appointment to a full time position. When a participant is eligible to enroll in the Plan, he/she will be asked to complete and submit an enrollment form within 31 calendar days of the 1st day of eligibility.
Subsequent Elections— During each Open Enrollment period, eligible employees will be asked to elect a dollar amount to contribute to the Flexible Spending Accounts for the next Plan Year. His/her compensation will then be reduced by the amount of his/her elections. Elections do not automatically carry over into the next calendar year, even if a participant wishes to keep his/her contribution amount(s) the same. A new election must be made each year, during Open Enrollment, to continue participating.
When an employee enrolls in one or both plans, he/she elects to participate for the full calendar year (or the remainder of the calendar year, if eligible to enroll during the year).
What are the important dates to remember when using the Flexible Spending Accounts?
● With the Medical Expense FSA, eligible expenses must be incurred between January 1 of the current year and March 15 of the following calendar year. Claims submitted for expenses incurred between January 1 and March 15 will automatically be applied first to any remaining Account balance from the previous calendar year. If there is no remaining balance from the previous calendar year or if the employee did not participate during the previous calendar year, claims will be applied against his/her current year balance.
● With the Dependent Care Account, eligible expenses must be incurred between January 1 and the next December 31 (i.e., during the calendar year). Expenses are treated as having been incurred when the employee or eligible dependent is provided with the service that gives rise to the expense, not when the participant is formally billed for, or pays for, the service.
If a participant does not incur enough eligible expenses during the year to use all the contributions made to the Flexible Spending Account(s), the IRS requires the participant to forfeit any remaining balance.
What happens if I have a Health Reimbursement Account HRA (with the High Deductible Health Plan) and a Medical Expense Flexible Spending Account?
Reimbursement to the employee for his/her eligible medical expenses will be provided first from any balance in the employee's Flexible Spending Account (FSA). If the participant does not have enough funds in the FSA to provide full reimbursement for his/her eligible medical expenses, the remaining amount may then be submitted for reimbursement through his/her Health Reimbursement Account (HRA). An employee may not be reimbursed for the same incurred medical expense from both the FSA and the HRA.
Am I allowed to make changes to my Flexible Spending Account Election throughout the year?
Other than during the annual Open Enrollment period, an employee may only make a change to his/her elections if the employee experiences a qualified change in status, as described below. At that time, an employee may choose to begin or end participation or increase or decrease the amount contributed to one or both plans. Employees must request a change, and submit the appropriate enrollment form to Human Resources, within 31 calendar days of the qualified change in status.
If an employee starts or ends participation in the Flexible Spending Account during the year due to a qualified change in status, participation in that Account starts or ends as of the effective date of the change in status. Other than in the case of birth, adoption, or placement for adoption, changes to benefit plan elections made on account of a status change will be effective the first of the calendar month following the status change.
An employee may not be reimbursed for expenses that were incurred before his/her participation began or after it ended. Except in limited circumstances, benefit election changes may not be made retroactively.
All mid-year election changes must be on account of and consistent with the status change experienced by the employee.
Changes to the Medical Expense FSA election may be made after the start of the Plan Year if:
- an employee experiences a "Change in Status," as defined by the Internal Revenue Service, that affects eligibility for coverage
- a change in legal marital status due to marriage, death of a spouse, divorce, legal separation, or annulment
- a change in number of dependents due to birth, death, adoption, or placement for adoption
- a change in employment status due to commencement or termination of employment, commencement of or return from an unpaid leave of absence, a change in work site by the employee or dependent, or other change in employment that leads to a loss or gain of eligibility of the employee, spouse, or dependent under a plan
- a change in a dependent's ability to satisfy the requirements for coverage due to attainment of age or full-time student status
- a change in the place of residence or work of the employee/retiree, spouse, or dependent that affects eligibility for coverage
- an employee, his/her spouse, or dependent(s) becomes qualified for, or loses, coverage under Medicare or Medicaid
- an employee/retiree or dependent qualifies for special enrollment rights under the Health Insurance Portability and Accountability Act (HIPAA): an individual who is otherwise eligible for health insurance coverage through the College's Plan, but declined coverage because he/she had other health insurance coverage, is permitted to enroll in the College's Plan upon loss of eligibility for other coverage or upon termination of "COBRA" coverage under another employer's plan; and an employee/retire may enroll him/herself and eligible dependents following marriage, birth of a child, adoption, or placement for adoption
Changes to Dependent Care FSA elections may only be made after the start of the Plan Year if:
- an employee experiences a "Change in Status" as described above
- a dependent care provider is replaced by another provider, resulting in a change in the cost of care
- an employee experiences a decrease in dependent care costs due to a coverage change, such as a reduced need for care
- an employee experiences a significant increase in dependent care costs, as long as the dependent care provider is not a relative of the employee
If I participate in both kinds of Flexible Spending Accounts (medical and dependent care), can I transfer the funds from one account to the other?
No. If a participant enrolls in both the Medical Expense FSA and the Dependent Care FSA, money may not be transferred between the two
What kinds of expenses can I submit to the Medical Flexible Spending Account?
Eligible expenses may be found on the Highmark website .
What dependents can I submit receipts for reimbursement for?
For purposes of the Dependent Care FSA, receipts can be submitted for the following dependents:
● The enrolled employee's child or stepchild, if the child is age 12 or younger (under age 13); if the child does not provide over half of his/her own support during the calendar year; and if the child shares the employee’s principal residence for more than six months of the calendar year.
● The legally-recognized spouse of the enrolled employee who is physically or mentally incapable of caring for him/herself; lives in the employee’s household for more than one-half of the taxable year; and spends at least 8 hours per day in the employee’s home.
● An employee’s child, grandchild, sibling, parent, grandparent, aunt, uncle, niece, or nephew who is physically or mentally incapable of caring for him/herself and depends on the employee for at least half of his/her financial support; lives in the employee’s household for more than one-half of the taxable year; and spends at least 8 hours per day in the employee’s home.
● An individual who is physically or mentally incapable of caring for him/herself; depends on the employee for at least half of his/her support; lives in the employee’s household for more than one-half of the taxable year; and spends at least 8 hours per day in the employee’s home
For purposes of the Medical Expense FSA, receipts can be submitted for the following dependents:
● The legally-recognized spouse of the enrolled employee.
● An enrolled employee’s child, if the child is age 25 or younger (under age 26).
● An employee’s child, grandchild, sibling or step-sibling, parent, grandparent, aunt, uncle, niece, or nephew who is physically or mentally incapable of caring for him/herself and depends on the employee for at least half of his/her financial support.
● An individual who is physically or mentally incapable of caring for him/herself; depends on the employee for at least half of his/her support; and is a member of the employee's household for the entire tax year.
The term "child" is defined as an individual who is the son, daughter, stepson, or stepdaughter of the employee; includes both a legally-adopted child of the employee and a child who is lawfully placed with the employee for legal adoption; and includes an “eligible foster child,” defined as an individual who is placed with the employee by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.
What are some types of expenses I can submit to the Dependent Care Flexible Spending Account?
● amounts paid to a dependent care center, babysitter, or nurse in order to allow the participant and his/her spouse to work
● amounts paid to a housekeeper or cook if part of the services are provided to a person who qualifies for dependent care
● amounts paid for services performed outside the home for the care of the participant's dependent or spouse
● amounts paid to a relative who provides dependent care services, provided the relative is not the employee's or his/her spouse's: (1) dependent for whom a personal exemption deduction is allowed for federal income tax purposes, or (2) child or stepchild who is under age 19 at the end of the calendar year
● expenses for after-school programs
● expenses for a summer day camp
● the full amount paid to a nursery school, even when the school provides lunch and educational services
What kinds of expenses CAN I NOT submit to the Dependent Care Flexible Spending Account?
● child care expenses when such expenses are incurred to allow an employee to participate in non-work activities
● child care expenses incurred while not actively working, such as when on leave of absence
● care in a convalescent nursing home
● cost of food, clothing, and educational expenses
● custodial care for a dependent who resides outside the participant's home
● dependent care that allows the participant or his/her spouse to do volunteer work
● expenses for which a dependent care tax credit is taken or that are reimbursed under a health care flexible spending account
● services provided by one dependent to care for another
● the cost of transportation between the employee's home and the place where dependent care services are provided
● tuition for kindergarten and schooling for first grade or higher
Other than not electing to continue participating in the Flexible Spending Account at Open Enrollment, under what other circumstances can my participation end?
● at the end of the calendar month in which employment termination or retirement occurs;
● during an unpaid leave of absence;
● at the end of the month following the date an employee is no longer eligible to participate in the Plan; or
● at the end of the month following the date the Plan is terminated.
An individual may continue to request reimbursement for medical care expenses incurred prior to or on his/her termination date. Eligible medical care expenses will be reimbursed to the full extent of the individual's unused annualized contribution.
Eligible dependent care expenses will be reimbursed to the full extent of the individual's unused Account balance as of his/her termination date for qualified dependent care expenses incurred during the remainder of the calendar year in which termination occurs.
The balance in an individual's Flexible Spending Account(s) will be maintained until March 31 of the following year, so that the individual can submit claims for any unreimbursed expenses.
How does the Dependent Care FSA work if I am divorced or separated from my spouse?
If an employee is a divorced or separated parent, he/she may be eligible to use the Dependent Care FSA if the employee must have day care services in order to work, even if the child does not reside with the employee-parent. In the situation where a child received over one-half of his/her support during the year from his/her parents who are separated, divorced, or have lived apart for the last six months of the year, and was in the custody of one or both parents during more than one-half of the year, the child will be eligible under the Dependent Care FSA even if the child did not live with the employee-parent for more than one-half of the year, if there is a written agreement that allows this or if the custodial parent agrees that he/she will not claim the child as a dependent. Employees are encouraged to consult a qualified tax advisor if this situation applies.
For purposes of the Dependent Care FSA, an individual shall be considered physically or mentally incapable of self-care if, as a result of a physical or mental impairment, the individual is incapable of caring for his/her hygiene or nutritional needs, or requires the full-time attention of another person for his/her own safety or the safety of others.
Can I continue participating in the Flexible Spending Accounts if I take Family & Medical Leave (FMLA)?
During a paid leave under the FMLA, participation will continue, and contributions will be deducted from the employee's salary on a pre-tax / salary reduction basis.
During an unpaid leave under the FMLA, an employee may elect to continue or may discontinue participation in the Medical Expense Flexible Spending Account. He/she must pay the contributions in one of the following ways:
1. Pre-payment Option (pre-tax) — If an employee elects this pre-payment option, he/she must notify the Plan Administrator, via Human Resources, at least one month in advance of commencement of leave. Pre-payment cannot be required as a condition of remaining in the Plan, nor can it be the only method offered for paying premiums for coverage during an FMLA leave.
2. Pay-As-You-Go Option (after tax) — Medical Expense Flexible Spending Account contributions must be submitted on a monthly basis to Human Resources. If premium payments are more than 30 calendar days late, participation in the Medical Expense Flexible Spending Account will be terminated during the remainder of the leave.
If I retire mid-year, am I able to continue participating in the Flexible Spending Account for medical expenses?
You may continue to participate in the plan for the rest of the calendar year during which you retire. Contributions after your retirement date must be post-tax, and must be paid by check to Human Resources and made out to Franklin & Marshall College.
What if I leave F&M and am then rehired?
If an employee terminates employment and is then rehired by the College within 30 calendar days, he/she will not be permitted to change previous Flexible Spending Accounts Plan elections, unless the employee has experienced another "Change in Status" or relevant event as described above.