Limited Purpose FSA

In the world of HR, there's a bunch of jargon that might sound like a foreign language to folks not familiar with the field. One of these terms is "Limited Purpose FSA," which HR pros need to grasp to manage employee benefits well. Understanding these terms is crucial for making sure employees get the benefits they're supposed to.

What's a Limited Purpose FSA?

A Limited Purpose FSA (Flexible Spending Account) is a type of work benefit where employees can put aside money before taxes to pay for specific healthcare costs not covered by their insurance. Unlike a regular FSA, which covers a wide range of medical expenses, a limited-purpose FSA is only for certain qualified medical costs.

What Expenses Are Covered?

With a Limited Purpose FSA, employees can use their funds for things like dental and vision care, some preventive services, and other medical expenses not usually covered by their insurance. However these expenses have to meet certain criteria set by the IRS to get reimbursed.

Any Restrictions?

Limited Purpose FSAs are meant to go with employees' existing health coverage, like a high-deductible plan paired with a Health Savings Account (HSA). So, the money in a Limited Purpose FSA can't be used for general medical costs covered by their main insurance. This setup helps employees save on taxes by using both their HSA and Limited Purpose FSA for different healthcare needs.

What About Employer Contributions?

Employers can choose to offer a Limited Purpose FSA as part of their benefits package. They can put money into employees' accounts, match some of what employees contribute, or simply offer the FSA as an optional benefit. Whatever they contribute is tax-deductible.

What Happens with Leftover Money?

Unlike some FSAs, Limited Purpose FSAs might let a bit of money roll over into the next year, up to a certain limit set by the employer or plan provider. But any leftover funds beyond that limit might be forfeited at the end of the plan year, following IRS rules.

Keeping Things in Line

HR pros make sure the Limited Purpose FSA follows all the rules, like making sure eligible expenses are documented correctly and employees know the plan's rules. They also work closely with administrators to manage the FSA day-to-day and help employees with any questions or issues about their benefits.

Wrapping Up

So, a Limited Purpose FSA is a helpful perk for employees, letting them save money on specific medical costs not covered by their main insurance. HR folks need to understand how it works to explain its benefits to employees and stay on the right side of the law. By offering this benefit, employers can ease the financial load of medical expenses for their staff, which boosts morale and overall well-being.