Medical Assistance for People Who Are Age 65 or Older or People Who Are Blind or Have a Disability

2.3.3.2.7.3.1 Health Flexible Spending Arrangements

Health flexible spending arrangements (FSA), also known as flexible spending accounts, are an employer-established benefit plan used to reimburse employees for qualified medical expenses. An employee’s voluntary salary reduction agreement with the employer usually funds health FSAs. The employer may also contribute to the health FSA.

Availability of Health FSAs

Health FSAs are not counted as an asset because FSA funds are restricted to pay for qualified medical expenses. Employers ensure that health FSA funds are only used for qualified medical expenses.

Identifying Health FSAs

General criteria for health FSAs include the following:

  • People must have an employer. Self-employed people are not eligible for FSAs.

  • To pay for medical expenses, employers issue debit cards, credit cards, and stored value cards to a person for use with participating medical providers.

  • Employers may also reimburse individuals who file a claim for reimbursement or submit an Explanation of Benefits (EOB) showing the funds the employee owes to the medical provider.

  • Employees may use FSA funds for qualified medical expenses for him or herself, or his or her spouse and dependents.

  • Employers do not deduct federal income taxes from the FSA contributions.

  • Employees do not have to report FSA reimbursements on income tax returns.

Contributions to FSAs

Contributions to a health FSA plan may vary. Each health FSA plan sets a maximum amount or maximum percentage of compensation that can be contributed to the FSA.

People do not pay federal income tax or employment taxes on the portion of their salary that they contribute or the amounts their employer contributes to the health FSA.

Distributions from FSAs

Health FSA distributions paid directly to the person are not income. Health FSA plans reimburse people for qualified medical expenses by issuing debit, credit, or stored value cards to pay for the expenses. They may also reimburse the person directly through a check or direct deposit.

Legal Citations

Minnesota Statutes, section 256B.056, subdivision 1a