A Health Flexible Spending Account (FSA) is a type of pre-tax benefit account where you can set aside pre-tax dollars to pay for eligible medical expenses.
FSAs are pre-funded, meaning that 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, runout period, or grace period.
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
Any employee who’s eligible to participate in health benefits with your company is eligible to participate in the FSA. This means:
Who's ineligible
Per the IRS, some individuals are not eligible to participate in an FSA:
Eligible expenses
Health FSA funds 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 January 1, 2024, to December 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.
Eligible dependents
Besides yourself, FSA funds can be used on eligible expenses for eligible dependents defined by IRS Publication 969.
These dependents are generally:
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.
FSAs are pre-funded, meaning 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.
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 pre-tax benefit 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:
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 contact 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. 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 into 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
Any employee who’s eligible to participate in health benefits with your company is eligible to participate in the FSA. This means:
Who's ineligible
Per the IRS, some individuals are not eligible to participate 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.
How to use your Health FSA funds
Health FSA funds can be used on eligible medical expenses. There are three ways you can use your funds on eligible expenses:
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.
Here's how to set up your Benefits Card Hub account, sign in, and recover your password or username.
To access the Benefits Card Hub for the first time, follow the steps below to register.
If you've left your company and did not register for the Benefits Card Hub during your employment: It’s not too late to register by using the steps below. But first, contact Gusto to request your registration ID.
Once you register for the Benefits Card Hub, you can sign in at this link or from your Gusto account.
Here's how to get there from your Gusto account:
If you do not know your password or username for the Benefits Cards Hub, follow these steps to recover or update it.
Here's how to add your card to mobile pay, lock or replace your card, dispute a transaction, and more.
Your Gusto benefits card will be mailed to your home address on file with Gusto after you’ve completed your enrollment into a pre-tax benefit (FSA, DCFSA, HSA, or Commuter).
Once mailed, it should arrive within 7–10 business days in a nondescript envelope from Gusto. Sign in to the Benefits Card Hub if you need to report your card lost or stolen.
You will only receive one card even if you are enrolled in multiple pre-tax benefit accounts. The card will automatically apply expenses to the appropriate account.
Once you’ve activated your card, you can add it to your mobile wallet. Choose your phone provider for instructions:
If you need help adding your card to your mobile wallet, contact your mobile wallet provider.
You must activate your Gusto benefits card before you can use it. You can activate it by phone or online in the Benefits Card Hub.
You'll set up a PIN during activation, but note that no vendors should require a PIN.
Activate your card by phone
Call the number on the sticker applied to your card. You will be prompted to provide the following information:
Activate your card online in the Benefits Card Hub
You will only receive one card even if you are enrolled in multiple pre-tax benefit accounts. The card automatically applies expenses to the appropriate account.
You set up a PIN when you activate your Gusto benefits card. However, you should not have to use it. Always check out using the credit option. If prompted for a PIN, you should always try to bypass the option.
Most vendors do not require a PIN to complete a transaction, even if prompted.
You may need to update a Gusto benefits card if one is lost or stolen, or if you no longer wish for your dependent to have an active card. Follow the steps below to manage your cards.
Lock a card
Close a card
Here's how to close one of the cards associated with your account. For example, you may do this if you no longer wish for your dependent to have an active card.
Replace a card
You have 60 days from the date of a transaction to dispute it for fraud. After 60 days, the transaction cannot be disputed. If you have a transaction you need to dispute, fill out this form.
What happens next?
Your dispute will go through an initial review within 3–5 business days. After the initial review, if deemed eligible for dispute, a provisional credit will be applied within 5–7 business days. If the dispute is approved, the credit will remain. If the dispute is denied, the credit will be removed. In total this typically takes around 60 days.
You may be able to request a Gusto benefits card for eligible dependents. There are two important consequences to ordering a dependent card that you must be aware of.
Here's how to request a Gusto benefits card for your dependent.
Dependents do not receive their own login to the Gusto Benefits Card Hub. If you need to submit an eligible dependent's expense for reimbursement, you can do so on their behalf in your account.
You can review and manage your expenses in the Benefits Card Hub: Under "My Accounts," click FSA. See the steps above on how to register or sign in to the Benefits Card Hub.
Add or edit a reimbursement method
You can choose to be reimbursed by check, direct deposit, Venmo, or PayPal. Follow these steps to set up or change your reimbursement method:
Note: Adding a bank account can take 2–3 business days to verify.
Receipt requirements
To ensure your documentation meets IRS criteria, make sure it includes:
Submit an expense for reimbursement
If you paid out of pocket for an eligible expense, you may submit it for reimbursement as long as the service was rendered during your coverage period, and the final date to submit claims has not passed.
To submit an expense for reimbursement:
If the information can be validated immediately, your claim will be approved on the spot. If additional review is required you will receive an email when the claim has been processed. This is typically 3-5 business days
When you'll be reimbursed
If your claim is approved, you’ll be reimbursed using the reimbursement method you selected above.
Here's how the reimbursement is sent, based on the reimbursement method you've chosen:
Submit an expense for reimbursement 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. You can confirm your last day to submit an expense in the Benefits Card Hub.
If you did not register for your Benefits Card Hub during your employment, contact Gusto for help.
Pay a bill directly
If you receive a bill for an eligible expense, you can pay it via check directly from your associated pre-tax benefit account.
If you've already paid the bill and want to be reimbursed, go to the header above titled "Submit an expense for reimbursement."
Here's how to pay a bill:
If all the required information can be identified in the receipt, your claim will be automatically approved and the payment will be made to the provider by check. If not, the claim will be manually reviewed within 3-5 business days. You will receive an email once the claim has been reviewed and processed.
Note: Checks expire after 180 days. You will receive an email if a check is about to expire. If the check was sent to your provider please connect with them first about the payment.
Resolve an expense that requires action
The IRS requires that we validate the eligibility of each FSA expense. If an expense requires additional information to complete this validation, we’ll email you. You’ll also see it as a notification on your Benefits Card Hub homepage.
Here's how to resolve an expense requiring action:
We'll review your documentation and email you with an update within 3–5 business days.
Here's what your documentation should include:
If you used your Gusto Benefits Card on an ineligible expense, we’ll email you. To make sure you're using the account’s funds by IRS standards, you should resolve this expense before the account expires.
To resolve an ineligible expense, you can either offset the balance with an eligible expense, or you can pay it back with a check.
Option 1: Offset the balance with an eligible expense
Option 2: Pay the expense back via check
Mail a check for the amount of the transaction to:
Choose a section below for more ways to manage your benefits.
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.
After your plan year ends or if you leave your company, you may have extra time to submit expenses for reimbursement.
To confirm your deadline to submit an expense for reimbursement: Sign in to your Gusto employee account, then go to the Benefits section. Click the FSA tile, then access your Gusto Benefits Card Hub.
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 FSA 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.
Your reimbursement request(s) must be for services rendered during your eligible coverage period. If you have two accounts that are eligible for reimbursements, you will submit a reimbursement request separately.
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 2024 is $640. The rollover limit for a plan starting in 2025 is $660.
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.