Employer Health FSA contributions drive goodwill, better health security for employees, and bigger tax savings for both. Learn more about employer options in matching contribution methods.
A Health FSA is a part of an employer’s Section 125 plan that allows employees to set aside pre-tax dollars to pay for out-of-pocket medical expenses. During the employer’s open enrollment period each year, every employee determines how much to set aside for the health FSA contribution by estimating eligible out-of-pocket medical expenses throughout the plan year. That amount is then divided into every pay period as a pre-tax salary reduction.
Employees decide how much they need in a Health FSA, but when it comes to how FSA contributions are managed, the employer sets all the rules, including:
And, it is up to the employer whether or not to contribute to their employees’ Health FSA.
*The annual limit is usually adjusted upward for inflation each year.
The IRS puts a limit on an employer’s contribution to the Health FSA based on how much the employee contributes:
Defined Contribution
Many employers contribute a set amount to all employees’ Health FSAs, even if the employee does not contribute at all.
The following table shows three common scenarios under the defined contribution method.
Dollar Match
The employer’s Health FSA contribution can be a dollar-for-dollar match to employee contributions.
The table below shows three scenarios under these plan rules.
Crossover
An employer may use a set minimum Health FSA contribution and dollar match together. For example:
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