Here are the key features of Flexible Spending Accounts that you should know. They'll help you decide if FSAs are right for you and your employees.
A flexible spending account (FSA) allows eligible employees to set aside pre-tax money via payroll deductions into a tax-free account and use this money to pay for eligible health care expenses. Zenefits offers two types of FSAs:
Employees can enroll in one or both types simultaneously in Zenefits. See this page for a comparison of the primary differences between Health Care and Child & Elderly Care FSAs. The only eligibility requirement for FSA is that the employee is offered benefits. They do not have to enroll in benefits, but the company just needs to offer medical benefits to the employee.
Offering FSAs can help your company and your employees in the following ways:
Learn more about the tax savings of FSAs for employers and employees.
Employees fund their FSAs through payroll deductions, but pay no fees for the accounts themselves. As an employer, you pay annual and monthly fees for your employees' FSA accounts. You can also choose to make optional contributions to your employees' FSAs.
Many companies choose to start a new FSA plan at the same time as their insurance.
Complete setup by the 15th of the month prior to your chosen start date. This lead time gives your employees a minimum of 10 days to decide whether to enroll.
If you complete setup after the 15th, the earliest your plan can start is the 1st of the month after next so that your employees still have at least 10 days to decide.
Once the company plan is set up, individual workers will need to complete enrollment by the 25th to start on the 1st of the next month. Anyone who misses the deadline will not be able to enroll until the next renewal, unless they have a qualifying life event.
Keep in mind that enrollees won't be able use the FSA funds until after their plans start, or get reimbursed for purchases made prior to the start of their plans.
The start date you choose can also determine when the plan renews:
If you choose the Calendar Plan Year option, your FSA plan year will be different from your contract's term, and you'll be charged the annual fee twice: once at the start of the Calendar Plan Year, and again when the plan renews in January.
You can also set optional and separate contributions to your employees' Medical and/or Dependent Care FSAs when you set up the plan, before employees choose their own contributions.
You can match employee's Medical FSA contributions from $0 up to the maximum of $3050 (2023 annual limit). Since you can't predict ahead of time what employees elect, if any individual employee sets contribution amounts less than yours, Zenefits simply reduces your contribution to match theirs.
If the FSA is a shortened plan year then the maximum contribution and matching amount will be prorated. So if the company is enrolled in the FSA effective 7/1 through 12 /31, the employee would only be able to contribute half of the maximum amount. This would then be the maximum that the employer is able to match.
For the latest contribution limits allowed by IRS, please check this Help Center article.
How much you choose to contribute to your employees' FSAs is up to you, but here are some things to consider when you're making the decision.
FSAs are "use it or lose it" accounts: any funds that employees haven't spent at the end of the year return to the employer. However, your employees have a 90-day run-out from the end of the year to submit claims for expenses during the plan year. You'll also have the option when you set up the plan to give your employee a little more flexibility at the end of the runout period by choosing one of two plan end types.
The start date you choose can also determine when the plan renews:
If you choose the Calendar Plan Year option, your FSA plan year will be different from your contract's term, and you'll be charged the annual fee twice: once at the start of the Calendar Plan Year, and again when the plan renews in January.
To set up a Company FSA, one of the company's administrators may sign into their account, and click on the Flexible Spending Account app. You may then follow the prompts to set the FSA up. The FSA needs to be set up on or before the 15th of the month to be effective the first of the very next month.
Like other tax-free accounts under IRS Sections 105 and 125, FSAs are subject to non-discrimination testing to determine whether the plan is compliant with IRS guidelines and that all your employees receive the same level of benefit from their FSAs.
Generally speaking, employees who own more than 5% of your company or make over $125,000 a year are considered highly-compensated for compliance testing purposes.
Generally speaking, key employees are officers (CEO, COO, President) who make over $180,000 a year, employees (and family members) who own 5% or more of your company, and employees who own over 1% of your company and make over $150,000 a year.
When you complete setup for a new company FSA, Zenefits will process the application, email you to let you know you're all set, and email your employees to let them know they can enroll in their own FSAs. Follow these next steps to prepare for the start of your plan.
If you use Zenefits Pay Connect with your payroll, do the following before your FSA plan starts:
If you have Payroll Reports or Zenefits Payroll, you're all set!
To get started with managing your company's FSA plan, see this guide to Managing a Company FSA with Zenefits.
Health Care FSAs are funded by employer transfers using funds deducted on a monthly basis from an employee's paycheck.
The process below describes how FSA accounts are funded.
Example of how FSA funding works for an Employee:
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