Author: Ray Kirk, Ph.D., Federal Benefits Specialist
Flexible Spending Accounts (FSAs) have been available to Federal Employees since 2003. There are two types of FSAs: Health Care Flexible Spending Accounts (HCFSA) and Dependent Care Flexible Spending Account (DCFSA). Both types of FSAs allow employees to save money on health care and dependent care expenses at no cost to them, yet they are utilized by only a small number of employees. The Office of Personnel Management’s 2023 Federal Employee Benefits Survey found 30% of employees had an HCFSA and only 9% had a DCFSA. Most articles about FSAs focus on the rules, what expenses are covered and how to enroll. You can find detailed information on those questions at:
This article has a different focus. The focus of this article is not on the rules but on the question “Why should I have an FSA?”.
The short answer to “why have an FSA” is they give you free money. Both HCFSAs and DCFSAs operate the same way. Money is withheld from your salary and deposited in an account. You then can receive reimbursement for eligible expenses from the account. The benefit to you is the money is withheld on a pre-tax basis. Federal, state and local income taxes, Social Security taxes, and Medicare taxes are not withheld from your FSA contributions, and you never have to pay them. The money you would have paid in taxes is yours to spend on health related or dependent care expenses. It’s like getting a discount on those expenses of 20% or more depending on your tax bracket.
In addition to the tax savings, FSAs are the only benefit that do not cost you anything. FSAs don’t have any premiums or enrollment charges. The administrative costs are paid by your agency. The biggest downside of FSAs is they are only available to employees. Annuitants are not eligible due to restrictions in the Federal tax code.
Why don’t more employees take advantage of these benefits? The most frequently reported reason given in the Employees Benefits Survey for not enrolling is the concern, “I will not spend the money during the benefit period and will have to forfeit the remaining funds.” Under the program’s original rules, if you didn’t spend all the money in your account during the benefit year, the balance was forfeited. However, over time the rules have evolved to make this a very unlikely event. Current rules will allow you to carry over up to $660 in 2025 to the next plan year. This means if you have $660 or less left in your account at the end of the year, you can still use that money anytime during the next year.
A Strategy to Try an HCFSA in 2025. Here’s a plan to try out an FSA in 2025. Enrollment in FSAs is during the Benefits Open Season which will run from November 11 to December 9, 2024 this year. You can elect any annual amount from $100 to $3,300. To try out an FSA, enroll for $660. Even if you don’t spend all the money in your account in 2025, you will be able to carry over the balance to 2026. If you are willing to be a little more adventurous, look at one of your recent health benefits claim statements for your FEHB plan, usually titled Explanation of Benefits (EOB). EOBs not only give information about the current claim but also have a summary of how much you have paid towards your deductible and co-payments. Have your medical expenses this year been typical for you and your family? If so, you can use it as a baseline for your FSA election. In addition to expenses covered by health insurance, FSAs can be used for other health expenses such as eyeglasses, contact lenses, contact lens solution, sunblock, first aid supplies, and much more. Take a look at the Federal FSA website FSAFEDS to see all the eligible expenses. Using this year’s expenses and a list of other eligible expenses you usually have, make a conservative guesstimate of what you might spend on allowable expenses in 2025 and enroll for that amount.
During the year monitor your FSA reimbursements. You will be surprised how quickly you are spending down your FSA account and taking advantage of the free money.
Dr. Ray Kirk is a retired Federal employee with over 40 years of Federal Service, 34 years of which were with the Office of Personnel Management. He was the Manager of the Benefit Officers Training and Development in Retirement Services for the last 12 years of his career. Dr. Kirk is a member of the Certified Retirement Counselor® Board of Standards and Policy Development. Dr. Kirk was a Federal Benefits instructor for NITP from 2014 through 2022 and continues to be affiliated with NITP providing webinars, newsletters, and special projects.
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