A Flexible Spending Account (FSA) is a pre-tax savings account you can use to pay for eligible medical expenses.
Employees can access their full election amount on the first day of the plan year. Employee contributions are then collected through pre-tax deductions throughout the year to repay the employer for those upfront costs.
FSA funds are "use it or lose it." Funds expire if they are not used by the end of the plan year, unless the company offers extension options like a rollover or grace period.
Choose a dropdown below to learn the basics about how an FSA works.
Your Health FSA can be spent on eligible medical, dental, vision, and pharmacy expenses incurred during your Health FSA policy year. For example, if your Health FSA is active from 1/1/23–12/31/23, you cannot pay for services rendered in 2022.
To learn more about what specifically is eligible, here are a couple more resources:
Keep in mind that if you're enrolled in a Limited Purpose FSA, you can only use your funds for eligible dental and vision expenses. Medical and pharmacy expenses will not be allowed.
Since FSA contributions are pre-tax, the IRS sets annual contribution limits.
Here are the maximum annual limits for Health Flexible Spending Arrangements (including limited-purpose FSAs):
Both the employer and employee can contribute up to the IRS max. For example, if both you and your employer contribute the max $3,050 for 2023, your account balance will be $6,100.
The limit also does not include rollover amounts. If your employer allows a rollover, your rollover amount is added to your election for the new plan year.
If you have two FSAs in one calendar year due to an employer change, you may contribute more than the IRS limit.
Employers can but are not required to contribute to employee accounts.
Eligible employees choose how much they want to contribute during open enrollment. Their contribution is also known as their election.
If you want to know how much you've contributed to your FSA, check your paystub or the Benefits section of your Gusto account.
The annual amount you choose to contribute during your enrollment is locked in for the company’s policy year. Your total election amount is divided by the number of regular payrolls your company will run during the policy year and deducted evenly from your paychecks. Health FSA elections cannot be changed unless you experience a qualifying life event.
If you experience a qualifying life event and think you're eligible to change your Health FSA contribution, please reach out to [email protected]. Include which qualifying life event you experienced, documentation of the event, and the new contribution amount you'd like.
Keep in mind that if you want to lower your contribution amount, it can only be lowered up to the amount that has already been used or contributed, whichever is larger.
Employees can start spending up to their full election amount on the first day of the plan.
Employee contributions are deducted pre-tax from payroll.
If a deduction is missed, the remaining amount owed is redistributed over the remaining payrolls in the policy year.
If an employee leaves the company before the end of the plan year and already spent their full FSA balance, the company forfeits whatever amount has not yet been deducted from their paychecks.
Employee deductions and company contributions remain in the company bank account until employees use their funds. Money only leaves the company bank account when an employee swipes their card or submits a claim.
Each day, the sum of all employees' disbursements are debited from the company in one lump sum. These are debited as "MBI" or "Med-I-Bank."
On the first of each month, benefits admins receive an employer disbursement report via email. This report lists all the previous month's individual transactions and claims, and you can use it to reconcile the debits.
There are many differences between the two, but one of the biggest distinctions is that the funds in an FSA will expire if unused during a plan year, while the HSA funds can be used beyond the plan year.
FSA: Employees can make pre-tax contributions to their FSA accounts, which are pre-funded by the employer and repaid through payroll deductions. Money in FSAs can be used to cover eligible expenses and must be used before the end of the plan year. This is known as the “use it or lose it rule.”
HSA: A tax-advantaged account for people who are enrolled in a high-deductible health plan (HDHP). Pre-tax dollars are contributed to the account and accumulate each year that you’re enrolled without expiring. These funds can be used to cover eligible medical expenses and investments.
When you enroll in an FSA in Gusto, we'll ask if you or your spouse plan to contribute to a Health Savings Account in the upcoming policy year. If so, you'll be enrolled in a limited-purpose FSA (LPFSA).
If you're not sure what kind of FSA you have, check out your plan details in the Benefits section of your Gusto account.
A general purpose Flexible Spending Account (most commonly known as an FSA) covers: all eligible medical, dental, vision, and pharmacy expenses. A limited-purpose FSA (LPFSA) only covers eligible dental and vision expenses.
If you or your spouse plan to contribute to a Health Savings Account during your FSA policy year, you're only eligible for an LPFSA. You can use the HSA for medical expenses and the LPFSA for dental and vision expenses.
General purpose FSA
Eligible medical expenses
Eligible vision expenses
Eligible dental expenses
Eligible pharmacy expenses
Here's what benefit admins need to know about setting up an FSA in Gusto.
Here are the company fees to offer an FSA with Gusto:
An enrolling employee is someone with an active benefit in that month or someone in a runout period.
To set up a Flexible Spending Account through Gusto, your company must also have Gusto-brokered medical insurance or use the broker integration. If you already have benefits with Gusto, you can add an FSA at your next renewal.
If you offer an FSA through a third party, you can set up payroll deductions for your enrolled employees.
Before you begin, you'll need a list of currently enrolled employees, their balances, and year-to-date contributions. Reach out to your current FSA provider if you need help finding this.
Once you complete the steps in Gusto, we'll start setting up your benefit and reach out to you with next steps.
Non-discrimination testing is a method you can use to make sure your benefits don’t favor highly compensated or key employees. For Flexible Spending Accounts (FSAs), a common test to use is the key employee concentration test. For Dependent Care Flexible Spending Accounts (DCFSA), both the key employee concentration test and the average benefits test are commonly used. You are encouraged to check with your tax expert and/or legal counsel to confirm which tests are necessary for your company.
We suggest that you run non-discrimination tests three times during your policy year to avoid any issues with the IRS:
If you have concerns about failing these tests throughout the policy year, you should check with your tax expert and/or legal counsel to determine which of the options below is best for you and then reach out to our team so we can help make changes to your benefits. Here’s what we may recommend:
The key employee concentration test requires that, of your employees’ total annual benefit amount, 25% or less of this amount comes from your key employees’ benefit totals. The total annual benefit amount includes pre-tax premiums of all lines of coverage, such as medical, dental, and vision, for both employees and dependents. If none of your company’s key employees opt in to the Health FSA, your company passes this test automatically.
If key employees account for greater than 25% of the total annual benefit amount, you are likely to fail the key employee concentration test at the end of your policy year
A key employee, is defined by the IRS as:
The average benefits test applies in a variety of situations, but for Gusto customers it’s especially important for DCFSAs. This test requires that the average election amount for the DCFSA of non-highly compensated employees be at least 55% of the average contribution amount for the DCFSA of highly compensated employees.
It can be difficult to predict whether your company may pass or fail this test until open enrollment is over, as it is based solely on your employees’ choice to opt into (or out of) the Dependent Care FSA. It can also be difficult to predict throughout the duration of your policy year, as any new hires opting in (or terminated employees losing this benefit), can also affect your pass/fail result at the end of your policy year.
A highly compensated employee, as defined by the IRS, is identified as an employee:
If everyone at your company owns more than 5% of the company and/or the majority of the team earns more than $120k, the DCFSA may not be the best benefit for your company.
Employees who satisfy the following criteria do not count toward the top-paid group:
Note: This article is for general and educational reference only and is accurate as of April 1, 2019. Since IRS laws are complex and change frequently, we'd recommend working with a tax professional to perform non-discrimination testing.
Here is some additional information on the specific IRS regulations pertaining to non-discrimination testing:
Here's who can enroll in your company's FSA:
Per the IRS, some people are not eligible to enroll in an FSA:
If your employer offers a Health Flexible Spending Account (FSA), you can enroll in it in Gusto if you’re eligible (as a new hire, during open enrollment, or if you've experienced a qualifying life event).
Follow these steps to enroll in or waive this benefit:
Your Gusto Benefits Card will arrive at your mailing address in a plain white envelope before the benefit begins.
After the benefit's effective date, you can find your plan details in the Benefits section of your Gusto account. There you'll also find your plan document, which explains FSA rules and how to use your benefits. Payroll deductions will begin on the first payroll of the FSA's plan year.
You can submit and manage claims in your Gusto Benefits Card Manager.
There are two ways you can use your funds on eligible expenses:
Here's what makes an expense eligible:
When your plan year ends or you leave your company, you may have extra time to submit claims. Check out the dropdown below for more info.
Once you receive your card in the mail, you can add it to your mobile wallet. Choose your phone provider for instructions:
If you use your card for the first time by swiping it or using mobile pay in person, the card is automatically activated. If your first use of the card is an online transaction, follow the steps below to activate it first.
If you need help adding your card to your mobile wallet, contact your mobile wallet provider.
Swiping your card at a physical location will automatically activate it.
If your first use of the card is an online transaction, follow these steps to activate it first:
If your company offers multiple benefits savings accounts through Gusto and you enroll in more than one, you will use the same Gusto Benefits Card for all transactions. For example, if you enroll in both commuter benefits and an FSA, you'll use the same Gusto Benefits Card for eligible commuting and medical expenses. Eligible claims and transactions are automatically drawn from the correct account.
Your Gusto Benefits Card should be used as a credit card, though some vendors require a PIN. How's how to find it:
If your Gusto Benefits Card has been misplaced or stolen, report it as soon as possible with these steps:
If you don’t have the option to issue another card to yourself, reach out to [email protected] and we'll issue you a new Gusto Benefits Card.
If you find a transaction that you did not complete yourself and you believe to be fraudulent, here's how to dispute it.
Note: If you recognize the transaction but the service provider charged the wrong amount, contact your provider directly to discuss the transaction.
If the dispute is approved, you should see a refund on your account within 55 days.
To register for the Gusto Benefits Card Manager (GBCM) for the first time, follow the steps below.
Once you're registered, you can access your Gusto Benefits Card Manager at this link or from the Benefits tab of your account.
If you've left your company and didn’t register for your Gusto Benefits Card Manager account during your employment, reach out to [email protected] for your sign-in credentials.
Make sure your receipt is a PDF without special characters in the title and includes:
You can review transactions, submit claims, and more in the Gusto Benefits Card Manager. If you need to register for the Gusto Benefits Card Manager, follow the steps above.
Submit a claim
Follow these steps to submit a receipt for reimbursement:
We’ll let you know once your claim has been approved or denied. To avoid a denied claim, make sure you’re using your card only for eligible expenses.
When you'll be reimbursed
If your claim is approved, we'll email you to ask if you want to be reimbursed with a check or by direct deposit. A check will arrive at your mailing address in 7–10 days. If you choose direct deposit, it will appear in 3–5 business days. It will be sent to the bank account listed under “Reimbursement Details” in your Gusto Benefits Card Manager and it will appear as an MBI or Med-I-Bank credit.
Need to submit claims after leaving your company?
If your benefit has a runout period, you may have extra time to submit claims for qualifying expenses incurred during your employment.
If you didn’t register for your Gusto Benefits Card Manager account during your employment, reach out to [email protected] for your sign-in credentials.
If we need more info from you to process an FSA claim, we'll email you to request documentation.
This may happen if you use your Gusto Benefits Card at a vendor that does not have an inventory information approval system (IIAS)—a system that contains known IRS-approved medical and pharmacy expenses. We're required to validate each FSA expense's eligibility.
Follow the instructions in the email to provide documentation for your FSA transaction in your Gusto Benefits Card Manager.
Once uploaded, we'll review your documentation within 3–5 business days then email you.
If this is the second time you're uploading documentation or the transaction has already been deemed ineligible, please notify [email protected] that documentation has been provided.
Here's what your documentation should include:
We'll review your documentation within 3–5 business days and email you with next steps. If the expense is approved, we'll ask if you'd like to be reimbursed via check or direct deposit. If we cannot validate your expense with the information provided, we'll either request more information or let you know how to pay an ineligible expense back.
If you're unable to provide documentation online, you may fax it to us. Please print the email we sent to you requesting the missing documentation. Fax this email, along with your documentation, to (844) 791-8320.
If you have a recurring Health FSA expense, you can let us know so you do not have to submit documentation every time. As long as the expense is an approved card transaction for the same amount each time, we can set up a recurring expense for you after documentation has been submitted and the transaction approved at least once.
Once you successfully submitted documentation for the recurring expense and it's approved, email us at [email protected] and we can set up the recurring expense.
Keep in mind that if the amount of a future transaction is anything other than the approved amount, you will still need to submit documentation.
Recurring expenses must be re-approved each new plan year. If you renew your FSA, repeat the steps above to set up a recurring expense again.
If you used your Gusto Benefits Card on an ineligible expense, we’ll email you with next steps. Your card may be temporarily suspended until the ineligible expense is resolved.
To resolve an ineligible expense, you can either offset the balance with an eligible expense, or you can pay it back from your bank account.
Option 1: Offset the balance with an eligible expense
Your card is reactivated once the offset is processed and you no longer owe a balance for an ineligible expense.
Option 2: Pay the expense back from your personal bank account
The repayment will be processed within 7 business days. When you submit a repayment, the "Balance Due" is removed from your home page, but the expense is still listed as "ineligible." If approved, the expense will be updated.
If your card is temporarily suspended and you want to pay for any eligible expenses in the meantime, you can pay out of pocket and submit a claim with your receipt.
By default, approved claims you're reimbursed by direct deposit for approved claims. Follow the steps below if you want to be reimbursed by check instead.
Choose a section below for more ways to manage your benefits.
The contribution amount you choose during your enrollment is locked in for the remainder of the company’s policy year. You can only change your FSA if you experience a valid qualifying life event, like the birth or adoption of a child.
Check out the chart below for life events that qualify you to make changes, and click here for steps to change your FSA contribution in Gusto.
Here are the contribution changes you can make:
Changes you can make
Relocation (only if it leads to a change in the cost of coverage)
Birth or adoption
Marriage, domestic partnership, or civil union
Divorce or legal separation
You enroll in a different FSA
Your dependent enrolls in a different FSA
You or a dependent gain eligibility for an FSA
You aged out of a parent's plan
Death of a dependent
Dependent lost other coverage
Here's what happens when your FSA plan year ends or an employee leaves the company. You can find your last day to submit claims in Gusto—go to the Benefits section and choose the FSA tile.
At the end of your company’s plan year, you have 90 days to submit claims for services rendered during your previous plan year. This is called the runout period.
In addition to the runout period, your plan either has a grace period or a rollover. Check the FSA tile in the Benefits section of your Gusto account to see which your plan has and your last day to submit claims.
After the last day of your plan policy year, a grace period is extra time when you can use your FSA funds on new expenses. A grace period is typically 75 days.
Although most funds in your FSA are "use it or lose it," you may be able to roll some funds over from one year to the next if you renew your FSA. if your company offers a rollover and you renew your FSA for another plan year, a rollover is an amount of money that can roll over from one policy year into the next.
If your plan has a rollover and you didn't spend your full amount in the previous plan year, this means an amount of money that can roll over from one policy year to the next as long as the employee renewed their Health FSA. The maximum an employer can allow an employee to rollover in 2022 is $570. The rollover limit for 2023 is $610.
During the 90-day runout period, if your company offers a rollover, you will be eligible to submit claims for previously rendered services and use your card for new expenses incurred. You can only use your rollover by submitting a claim. Using your card will draw from your current plan year's funds and the transaction will later be denied. Then you'll have to repay the balance before submitting the transaction as a claim for reimbursement.
A Health FSA is terminated on the last day of employment.
Runout period: A dismissed employee has 90 days from the last day of employment to submit claims for any eligible services rendered during the policy period. The policy period starts on the effective date of the FSA and ends on the last day of employment. For example, if your last day of work is November 1st, you have until January 30th to submit claims. Those claims must be for eligible expenses that you incurred during the policy period and on or before November 1st.
After the 90-day runout period, any remaining funds left in your account are forfeited to your previous employer.
You can see your last day to submit claims in your Gusto Benefits Card Manager: click into your Health FSA and look at the “Deadlines” section.
If you didn’t register for your Gusto Benefits Card Manager account during your employment, please reach out to [email protected] for your sign-in credentials.