Scope of FSA Coverage a Consideration

The government’s planned flexible savings account program, due to begin next July, will fall under the same tax code provisions governing similar programs that are now widespread in the private sector. For the dependent care FSAs, in which employees will be able to designate up to $5,000 a year pre-tax, the general requirement is that the individual must be using such care services in order to be able to work. Thus, it would apply to situations of two working spouses or one working spouse and one student, but not to one working spouse and one stay at home spouse. To be eligible, the expense would have to be paid to a care provider who pays taxes on income received for providing care. For the medical care FSAs, in which employees will be able to designate up to $3,000 a year, the general rule is that the money can be used for medical costs that would count against the 7.5 percent of adjusted gross income above which such costs are deductible. That would include, for example, health insurance copayments and deductibles and dental and vision care not paid by insurance but generally not cosmetic surgery.