Flexible Spending Account contribution limits to increase in 2024

The IRS recently announced that Flexible Spending Account contribution limits are increasing from $3,050 to $3,200 in 2024. Here, a primer on how FSAs work and why they are an essential way to save money on health care costs.

Basics

An FSA allows you to set money aside to pay for approved health care expenses not covered by your health plan. Contributions are made through payroll deductions before taxes are applied, which shelters the contributions from payroll taxes and lowers your taxable income. This produces about a 30% savings on health care expenses paid through the account.

There continues to be increased reimbursement flexibility from the FSA. Paperless reimbursement is now available from most FEHB and FEDVIP plans. Federal employees can choose from either auto reimbursement or pick and process. With auto reimbursement, if you have a participating plan, you will be automatically reimbursed when claim information becomes available, eliminating most paperwork. With pick and process, eligible expenses are loaded to your account, and you can choose which claims you’d like paid through the FSA. Both direct deposit and checks are available for payment.

Eligible Expenses

There are many health care expenses that are FSA eligible, including:

• Dental care
• Vision care
• Prescription drugs
• Medical copays, coinsurance, and deductibles
• Over-the-counter health care items such as allergy and pain medications

These are a few expenses that aren’t eligible:

• Cosmetic procedures or surgery
• Hair regrowth products
• Insurance premiums
• Long-term or nursing care
• Teeth whitening

Here’s a list of approved expenses.

Budgeting

There’s a use-or-lose aspect to the FSA. If you elect to take the maximum contribution, $3,200, next year, and use only $1,000, you will forfeit $1,560 of the remaining funds. That’s because there is a limit to how much you can rollover into the next plan year. The carryover amount is also increasing from $610 to $640, but a rollover is only available if you stay enrolled in an FSA the next plan year.

Families will have to perform some back-of-the-napkin math to come up with a rough estimate of their out-of-pocket costs. Start with known dental, vision, and medical care costs you know you’ll have and think about what you might spend on over-the-counter items throughout the year. Your math doesn’t have to be perfect. The rollover amount gives you some wiggle room.

Limited Expense FSA

If you have a High Deductible Health Plan with a Health Savings Account, IRS rules disqualify you from also having a health care FSA. However, limited expense FSAs are available for eligible dental and vision expenses only. Enrolling in the limited expense FSA is a smart strategy for those with an HSA as it will increase your chance of keeping HSA funds invested and growing over time.

The Final Word

Every federal employee could benefit from an FSA as everyone will have some type of eligible health care expenses. Yet only about 20% of federal employees participate in the FSA program. With a 7.7% average enrollee share of FEHB premiums on tap for next year, the FSA is an important way to save money on health care expenses. With more convenient reimbursement procedures, it’s never been easier to use.

Keep in mind this tax-preferred savings account is only available to active federal employees. Annuitants are ineligible as annuity payments are not considered salary, and FSAs require salary deductions for funding. 

To learn more about the federal FSA program, or to enroll, go to FSAFEDS. FSA Open Season shares the same dates as the FEHB Open Season, Nov. 13 through Dec. 11.

Kevin Moss is a senior editor with Consumers’ Checkbook. Checkbook’s 2024 Guide to Health Plans for Federal Employees is available now. Check here to see if your agency provides free access. The Guide is also available for purchase and Government Executive readers can save 20% by entering promo code GOVEXEC at checkout.