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HSA + FSA = Limited Purpose FSA: The Little-Known Option with Great Saving Potential

There is a good chance many employers and employees are familiar with the Flexible Spending Accounts (FSAs).  FSA plans allow the employee to set aside pre-tax money to pay for a wide variety of qualified health care expenses but are disqualified from being enrolled due to their enrollment in a Health Savings Account (HSA).  What they don’t know is that when combining an HSA with an FSA option, an employer is giving their employee an account combination that will help them maximize their tax savings on health care expenses – the little-known option with a great savings potential – the Limited Purpose FSA.

The BASE® Limited Purpose Flexible Spending Account is a form of Flexible Spending Account (FSA) that is strictly used for reimbursing eligible dental and vision expenses.  This type of plan is for employees who are enrolled in a High Deductible Health Plan (HDHP) with a funded Health Savings Account (HSA).  Qualified expenses under the Limited Purpose FSA are dental and vision deductibles and copays, vision exams and screening tests, eyeglasses and contacts, dental x-rays, orthodontia work, and much more.

The Limited Purpose FSA can only be used for dental and vision expenses but can still provide both the employer and employees with a significant tax advantage without having to give up on the benefits of an FSA when an HSA is involved.  For 2021, the annual maximum election limit is $2,750.

To the EMPLOYER

Ability to Expand Benefits Package.  Employers can use this account to maximize savings and tax benefits for their business and employees.  With the Limited Purpose FSA paired with the HSA, an employer can expand benefits to include both.

Financial Benefits.  When the employee elects to make a pre-tax contribution for the dental and vision expenses, the employer’s share of FICA and FUTA taxes are reduced.

To the EMPLOYEE

Increased Take-Home Pay.  The funds are transferred on a pre-tax basis, so employees save on Federal, State, Social Security, and Medicare taxes.

Increased Benefit Savings.  The Limited Purpose FSA covers qualified out-of-pocket expenses for dental and vision.  By utilizing this type of FSA, employees can save more money in their HSA for other qualified medical expenses or save for the future.  It allows employees to use their pre-tax dollars to pay for their qualified dental and vision expenses while allowing them to continue to save money in their HSA.

An employee can save up to 30% paying for their dental and vision expenses with a Limited Purpose FSA versus with after-tax funds.*  One big thing to remember:  There is no double dipping allowed.  An employee cannot be reimbursed for dental and vision expenses through the Limited Purpose FSA AND their HSA.

Limited Purpose FSAs are a great way to take advantage of having pre-tax money to pay for out-of-pocket dental and vision expenses while growing your HSA account for the future.  Click here to read more about the BASE® Limited Purpose Flexible Spending Account or call 888.386.9680.

* Depending upon your tax bracket.

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