A Health 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.
If your FSA is managed by Gusto (including the broker integration), you can enroll from your Gusto account and review transactions, claims, and more in the Gusto Benefits Card Manager.
To offer an FSA with Gusto, your company must offer health insurance with Gusto. If your company offers an HSA through a third party, admins can set up benefit deductions for your team.
Choose a dropdown below to learn the basics about how a Health FSA works. If your Health FSA is managed by Gusto, head to the Benefits section of your Gusto account to learn about your plan's details.
Who's eligible
Who's ineligible
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 Jan 1, 2024–Dec 31, 2024, you cannot pay for services rendered in 2023.
Here are a few resources about eligible expenses:
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 Health 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 $3,200 for 2024, your account balance will be $6,400.
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 Health 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. The employee's annual election amount (the contribution amount they chose for the plan year) is evenly distributed across each payroll in the plan year.
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 Health 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 funds in an FSA will expire if they're 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.
Learn more about how to spend your FSA and HSA from the IRS.
There are two types of Health FSAs:
If you and/or your spouse contribute to a Health Savings Account (HSA) during the Health FSA plan year, you are only eligible for an LPFSA.
When you enroll in a Health 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 an LPFSA.
If you're not sure what kind of Health FSA you have, check out your plan details in the Benefits section of your Gusto account.
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| General purpose FSA | Limited-purpose FSA |
| Eligible medical expenses | ✓ |
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| Eligible vision expenses | ✓ | ✓ |
| Eligible dental expenses | ✓ | ✓ |
| Eligible pharmacy expenses | ✓ |
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When an employee sets aside pre-tax money for a Health FSA, their gross taxable income is lowered. Since employers are taxed for FICA on the amount an employee earns, employer taxes are also reduced.
Here's what benefit admins need to know about setting up a Health 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 Health 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 only add a Health FSA at your next renewal.
To set up medical coverage and a health FSA, check out this article.
If you offer an FSA through a third party, you can set up payroll deductions for your enrolled employees.
Follow these steps if your company offers a Health FSA you'd like to transfer to Gusto. You must offer medical benefits through Gusto or use the broker integration to offer a Gusto Health FSA.
Before you begin, you'll need a list of currently enrolled employees, their balances, and year-to-date contributions. Reach out to your current Health 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 what you need to know about enrolling in a Health FSA.
Who's eligible
Who's ineligible
Per the IRS, some people are not eligible to enroll in an FSA:
When you can enroll in a Health FSA
If your employer offers a Health Flexible Spending Account (FSA) and you're eligible, you can enroll through Gusto:
Enroll
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 Health FSA rules and how to use your benefits. Payroll deductions will begin on the first payroll of the Health FSA's plan year.
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.
Receiving your card
We'll mail your Gusto Benefits Card before the effective date. We'll email you once it's been sent, and it'll arrive in a blank white envelope. The same card can be used for up to 3 years if you renew your benefit each year.
Add your card to mobile pay
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.
Activate your card
Swiping your card at a physical location will automatically activate it.
If your first use of the card is an online transaction, follow the steps below to activate it first.
Use your card for multiple benefits
If your company offers multiple benefits savings accounts through Gusto and you enroll in more than one, you'll 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.
Find your PIN
Your Gusto Benefits Card should be used as a credit card, though some vendors require a PIN.
Report your card as lost or stolen and order a new card
If your Gusto Benefits Card has been misplaced or stolen, report it as soon as possible.
If you do not have the option to issue another card to yourself, reach out to [email protected], and we'll issue you a new Gusto Benefits Card.
Dispute a card transaction
If you find a transaction that you did not complete yourself, and you believe to be fraudulent, you can 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.
Order a card for a dependent
You may use your card on qualified expenses for yourself and your dependents. An eligible dependent is any family member who is a tax dependent on your tax return.
If needed, follow these steps to add a dependent to your account and issue them their own card:
We'll mail the card in a blank white envelope to your mailing address within 7–10 days.
Follow the steps below to register for the Gusto Benefits Card Manager (GBCM) for the first time.
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 did not register for your Gusto Benefits Card Manager account during your employment, reach out to [email protected] for your sign-in credentials.
Receipt requirements
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 create your Gusto Benefits Card Manager account, follow the steps above.
Submit a claim 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 you choose to be reimbursed by check, a check will arrive at your mailing address in 7–10 days.
If you choose direct deposit, it'll be sent to the bank account listed under “Reimbursement Details” in your Gusto Benefits Card Manager within 3–5 business days. It will appear as an MBI or Med-I-Bank credit.
Submit a claim 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 did not 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 a Health 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 Health FSA expense's eligibility.
Follow the instructions in the email to provide documentation for your Health FSA transaction in your Gusto Benefits Card Manager.
Once uploaded, we'll review your documentation within 3–5 business days then email you.
If you do not upload documentation, we'll send a reminder email one week and three weeks after the first notification. If 35 days pass after the second reminder email with no documentation uploaded, the account will be suspended and a balance due will be created.
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 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 Health 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 are reimbursed by direct deposit. If you want to be reimbursed by check instead, follow the steps below.
Choose a section below for more ways to manage your benefits.
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.
If you are no longer interested in offering a Health FSA, you can either cancel the plan at your next renewal or cancel the benefit mid-year.
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:
| Event | Changes you can make |
| Relocation (only if it leads to a change in the cost of coverage) |
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| Court order |
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| Birth or adoption |
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| Marriage, domestic partnership, or civil union |
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| Divorce or legal separation |
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| You enroll in a different FSA |
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| Your dependent enrolls in a different FSA |
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| You or a dependent gain eligibility for an FSA |
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| You aged out of a parent's plan |
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| Death of a dependent |
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| Dependent lost other coverage |
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| International relocation |
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There are no tax forms required for Health FSA benefits.
Find your deadline to submit claims
Whether your plan year has ended or you're leaving your company, here's where to find your deadline to submit claims:
If your plan year has ended or your company has canceled the Health FSA, you may still have access to your Health FSA funds via the runout period, grace period, or rollover.
If your company is moving off of Gusto or has found a new broker, connect with your employer on whether your commuter benefits will be moving as well. In either of these situations you will not be able to submit expenses for reimbursement after the plan has ended.
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.
You can submit a claim for one plan year at a time. When you submit a claim during the runout period for your previous plan year, do not include any expenses from your new plan year. Submit a separate claim for your new plan year’s expenses.
In addition to the runout period, your plan either has a grace period or a rollover. Check the Health FSA tile in the Benefits section of your Gusto account to see if your plan has this and your last day to submit claims.
If your company offers a grace period, this extends the time period in which you can use your health FSA funds for new expenses. A grace period is typically 2 months and 15 days.
Although most funds in your FSA are "use it or lose it," if your company offers a rollover, you may be able to roll some funds over from one year to the next (only if you renew your Health FSA). If your company offers a rollover and you renew your Health FSA for another plan year, a rollover is an amount of money that can roll over from one policy year into the next.
The maximum an employer can allow an employee to rollover for a plan starting in 2023 is $610. The rollover limit for a plan starting in 2024 is $640.
During the 90-day runout period, if your company offers a rollover, you may 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.
After the runout period, grace period, and or rollover any remaining funds in your Health FSA are forfeited to your company. (As set by the IRS. See Publication 969.)
A Health FSA is terminated on the last day of employment. Funds are "use it or lose it," meaning any leftover funds after the runout period are forfeited to the employer. 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.
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. Employers may not cash out any remaining FSA balance to employees.