Limited Purpose FSA
The BASE® Limited Purpose FSA is a form of flexible spending account that is strictly for reimbursing eligible dental and vision care expenses. This type of plan is for employees who are enrolled in a high deductible health plan, and are enrolled in a Health Savings Account (HSA). When enrolled in a Limited Purpose FSA, employees save tax dollars, and are also open to utilizing HSA funds for savings and investment opportunities.
Individuals may not contribute to a health savings account (HSA) if they are covered by any non-qualifying health plan, which includes a medical FSA. By limiting reimbursements to only dental and vision care expenses, individuals remain eligible to participate in both a Limited-Purpose FSA and an HSA. Basically this allows participants the opportunity to build contribution amounts in their HSA while still receiving a pre-tax benefit for eligible dental and vision expenses.
Benefit to Employer:
Ability to Expand Benefits Package.
Often time employers are looking for additional ways to maximize savings and tax benefits for their business and employees. By limiting FSA reimbursements to dental and vision care expenses, an employer can now expand benefits to include both a Limited Purpose FSA and an HSA. Plus, employers can also expand benefits even further with the addition of a Dependent Care Assistance Plan under a 125 Cafeteria Plan, only adding to the savings opportunities.
Even though this is considered an employer provided plan, the employee elects to make a pre-tax contribution for dental and vision expenses that reduces the employer’s share of FICA and FUTA taxes.
Easy and Inexpensive Set Up.
If only a few employees choose to take advantage of the ability to pay for dental and vision care expenses with pre-tax dollars, the employer can still realize a net financial gain. The Limited Purpose FSA allows small business owners to help employees pay for eligible dental and vision expenses by utilizing pre-tax dollars through a Section 125 Cafeteria Plan.
Benefit to Employee:
Increased Take-Home Pay.
Since these funds are transferred from the employee’s wages on a pre-tax basis, employees save federal, state, Social Security and Medicare taxes. By setting aside these dollars pre-tax, employees are able to increase their take-home pay.
Increased Benefit Savings.
The Limited Purpose FSA covers qualified out-of-pocket expenses for dental and vision care expenses for an employee as well as spouse and dependents. Eligible expenses can include dental checkups, vision exams, eyeglasses, and much more. By utilizing the Limited Purpose FSA for these expenses, it allows employees to save HSA funds for the future.
Frequently Asked Questions
No. Per the IRS, there is no double dipping allowed. Expenses reimbursed through a Limited Purpose FSA cannot be reimbursed under any other tax-advantaged reimbursement plan, which includes Health Savings Accounts.
The BASE® Limited Purpose FSA can be used to pay for dental and vision expenses not paid for by insurance or through another tax-advantaged medical reimbursement plan, usually dental and vision deductibles and co-pays, vision exams and screening tests, eyeglasses and contacts, dental x-rays, orthodontia work and more.
No. An employee who does not participate in the Health Savings Account can participate in an FSA. The FSA can either be a medical (general purpose) FSA or Limited Purpose FSA.
No. The only time an employee can make a change to the amount elected during the plan year is if they have had a qualifying event during the plan year (e.g., marriage, divorce, or the birth of a child). These types of election changes must be made within 30 days of the event.