During the summer, the Employees Retirement System of Texas (ERS) conducted several benefits webinars for active employees and retirees not eligible for Medicare. We thank you for tuning in to these webinars and sending us your questions during the presentations. Flexible spending accounts come with rules and regulations, but they can be a great way to save money on income taxes. Let’s take a look at answers to some of the most common questions we answered during the TexFlexSM flexible spending account (FSA) program webinar.
Q. If I put money into a TexFlex dependent care account and do not use it, can I get this money back? For example, if I elect $3,000 for dependent care, but only use $2,800, will I lose the remaining $200 or does TexFlex refund it?
A. The TexFlex dependent care accounts are considered use-it-or-lose-it plans. You will not get a $200 refund.
However, after the plan year ends (on August 31), you have a two-and-a-half month grace period (until November 15) to use those dependent care funds. There’s an extension for Plan Year 2020 due to COVID-19; see "Important Plan Year 2020 exception" at the end of this article.
You have until December 31 to file claims for dependent expenses. incurred through the grace period.
Eligible expenses, set by the IRS, include:
- child care -- at a day care center, day camp, sports camp, nursery school or by a private sitter. This includes online camps,
- before- and after-school care (must be billed separately from tuition),
- adult day care expenses,
- expenses for a housekeeper whose duties include caring for an eligible dependent and
- placement fee expenses and stipend for an au pair.
Your dependent's care is eligible for TexFlex reimbursement, as long as the dependent:
- is claimed by you as a federal income tax exemption,
- resides in your household and
- is under age 13, or physically/mentally incapable of self-care.
For more information, you can visit the TexFlex website.
You can also read IRS Publication 503, which explains dependent care credit.
Q. I don’t want to waste money! How can I avoid losing money with my TexFlex health care flexible spending account (FSA)?
A. Health care FSAs are use-it-or-lose-it accounts in accordance with the IRS. The only way you lose money, though, is if you don’t file claims for eligible expenses in the time allowed and you have more than $500 in your health care FSA when the plan year ends. Most plan years, you can carry over up to $500 to the next plan year. For Plan Year 2021 (September 1, 2020 – August 31, 2021), the carryover amount increases to $550.
Here’s how it works:
Claims. In most years, you have until the end of the plan year to use those funds (see "Important Plan Year 2020 exception" at the end of this article). You can submit receipts for eligible plan year expenses through December 31 of the calendar year.
Carryover amount. Let’s say you elected to have $2,000 deposited into a health care FSA. You spent $1,800 in eligible expenses. The remaining $200 will carry over to the next plan year. It will stay in your account, along with any money you decide to contribute in the new plan year.
However, if you spent $1,300 in eligible expenses, only $500 of the remaining $700 carries over. You will lose $200.
Why? Only TexFlex health care or limited-purpose FSA balances of at least $25 and up to $500 carry over to the next plan year. (For PY21, that amount increases to $550.)
You can carry over up to $500 in health care and limited-purpose FSAs from one year to the next. If you have funds carry over in a TexFlex health care FSA or limited-purpose FSA, you can still contribute to the IRS contribution limit in the new year. Your carryover amount will stay in your TexFlex health care or limited-purpose FSA, in addition to the amount you elect to contribute in the new plan year.
The carryover does not apply to a dependent care FSA. That's because the dependent care FSA has the grace period mentioned above.
Q. Do we have to submit receipts for all charges on the FSA?
A. WageWorks, the company that manages TexFlex for ERS, will ask for a receipt if it cannot automatically verify that the service or product you paid for with FSA funds is eligible. (The IRS decides what you can spend your TexFlex dollars on.) Remember to ask for itemized receipts and keep them at least until you’ve been reimbursed.
And, as convenient as it can be to use the TexFlex card, some members prefer to pay for the service out-of-pocket and then submit a claim once they’ve gotten the final itemized receipt or the explanation of benefits (EOB). These members say that getting reimbursed after the fact is sometimes easier than validating a card swipe.