OPM raises flexible spending account ceiling to $4,000

Federal employees can now put aside up to $4,000 in pre-tax money to pay for certain health care expenses, the Office of Personnel Management announced Friday.

Flexible spending accounts (FSAs) let employees set aside pre-tax dollars for certain expenses not already covered by regular health insurance, such as co-payments, deductibles, laser eye surgery and dental work. When OPM introduced the FSA program earlier this year, it set the maximum at $3,000, but officials decided recently to raise the ceiling, said Frank Titus, OPM's assistant director for insurance services.

Employees can also set aside up to $5,000 in dependent care accounts for child care and elder care costs. Elder care includes nursing care for elderly parents who rely on the account holder.

An employee with an FSA contributes money to the account, pays for medical services up front and then submit receipts to his or her agency, which reimburses the employee from the account. There is a "use-it-or-lose-it" element to FSAs. Under Internal Revenue Service rules, employees must forfeit any money they don't use in a calendar year.

"This decision will allow federal employees to reap even more benefit from the FSA program," National Treasury Employees Union President Colleen Kelley said. "Each year federal employees, like all Americans, spend a fair amount of money on out-of-pocket medical expenses. This increase will allow FSA enrollees to enjoy additional savings from the program."

OPM has extended the end date of the open season to enroll in the program for 2004 to Dec. 15 to accommodate the change, Titus said. Federal employees who opted to enroll in the program before the announcement have until then to make changes to their account. Titus also stressed that federal employees participating in the program now need to re-enroll if they want to continue in 2004.

"This is different than what happens with health benefits. If you're happy with your health benefits account, you don't have to do anything and you have the same enrollment as you did in the prior year. But with FSA accounts you have to enroll every year," Titus explained.

To date, 17,590 federal employees have signed up to open flexible spending accounts in 2004, according to Titus.

To estimate how your tax bill might be affected, use this calculator. For more information about covered expenses, see IRS Publication 502 (for medical expenses) and IRS Publication 503 (for dependent care expenses).

Check out GovExec.com's Open Season Guide for more information on the FSA program and Federal Employees Health Benefits Program.