Manage your health flexible spending account (FSA)

Summary

Enrolling, eligible expenses, what happens at the end of the plan year or if you leave the company.

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Content

This article is for admins who want to set up a health flexible spending account (FSA) program for their teams, and employees who want to enroll in and use their FSA benefits.

A health FSA is a pre-tax benefit account where you can set aside pre-tax dollars to pay for eligible medical expenses.

Health FSAs are pre-funded, which means employees can access their full election amount on the first day of the plan year. Employers collect employee contributions through pre-tax deductions throughout the year to repay the upfront costs.

Health FSA funds also expire if you do not use them by the end of the plan year unless your company offers extension options like a rollover, runout period, or grace period.

To offer a health FSA with Gusto, your company must offer health insurance with Gusto. If your company offers a health FSA through a third party, you can still set up benefit deductions for your team.

Employees and admins: Health FSA overview

Expand the sections to learn how a health FSA works. If Gusto manages your health FSA, go to the Benefits page of your Gusto account to learn about your plan details.

Health FSA eligibility requirements

Health FSA eligibility is based on employment status and Internal Revenue Service (IRS) guidelines. All full-time employees qualify, but specific roles — like contractors and business owners — are excluded.

Who can receive health FSA benefits

Any employee eligible for health benefits with your company can participate in the FSA. This means:

All full-time employees are eligible.
If your company offers medical insurance to part-time employees, they’re eligible.

Who cannot receive health FSA benefits

These individuals cannot participate in a health FSA through Gusto due to IRS requirements:

Variable employees
Seasonal employees
Contractors
Owners taking owner’s draws
2% or greater shareholders of S Corporations

Eligible health FSA expenses and dependents

A health FSA can pay for many healthcare costs, but not everything qualifies. There are also limitations on who can be considered an eligible dependent.

Eligible health FSA expenses

You can spend health FSA funds on eligible medical, dental, vision, and pharmacy expenses that happened during your health FSA policy year. For example, if your health FSA is active from January 1, 2025, to December 31, 2025, you cannot pay for services that occurred in 2024.

Here are a few resources about eligible expenses:

If you’re enrolled in a Limited-Purpose FSA (LPFSA), you can only use your funds for eligible dental and vision expenses. Medical and pharmacy expenses are not covered.

Eligible dependents

Besides yourself, you can use health FSA funds on eligible expenses for:

Your spouse
Any dependent you claim on your tax return
Your children 26 and under

These are defined by IRS Publication 969.

Health FSA contributions

Since health FSA contributions are pre-tax, the IRS sets annual contribution limits.

Pre-tax contribution limits

Here are the maximum annual limits for Health Flexible Spending Arrangements (including Limited-Purpose FSAs):

2024: $3,200
2025: $3,300

Both the employer and employee can contribute up to the IRS max. For example, if both you and your employer contribute the max $3,300 for 2025, your account balance will be $6,600.

The limit also does not include rollover amounts. If your employer allows a rollover, the system adds your rollover amount to your contribution (or “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.

Company health FSA contributions

Employers can, but are not required to contribute to employee accounts.

Eligible employees choose how much they want to contribute during open enrollment.

View year-to-date health FSA contributions

If you want to know how much you’ve contributed to your health FSA, check your paystub or the Benefits page of your Gusto account.

Change your health FSA contributions

The annual amount you choose to contribute during your enrollment locks in for the company’s policy year. Your company divides your total election amount by the number of regular payrolls your company will run during the policy year and deducts it evenly from your paychecks. You cannot change health FSA elections 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 benefits@gusto.com. Include which qualifying life event you experienced, documentation of the event, and the new contribution amount you’d like.

Remember that if you want to lower your contribution amount, you can only lower it up to the amount you’ve already used or contributed, whichever is larger.

How health FSA funds move

Health FSA funds are available in full at the start of the plan year, while employee contributions are deducted gradually from each paycheck.

Health FSA fund availability

Health FSAs are pre-funded, meaning employees can start spending up to their full election amount on the first day of the plan.

Health FSA payroll deductions

We deduct employee contributions pre-tax from payroll. We evenly distribute the employee’s annual election amount (the contribution amount they chose for the plan year) across each payroll in the plan year.

If we miss a deduction, we redistribute the remaining amount owed over the remaining payrolls in the policy year.

If an employee leaves the company before the end of the plan year and has already spent their full health FSA balance, the company forfeits any amount that has not yet been deducted from their paychecks.

Company bank account debits

Learn about funding requirements, associated bank debits, and how to reconcile those debits.

FSA vs. HSA

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.

Types of health FSAs

There are two types of health FSAs:

General-Purpose FSA (GPFSA):
- You can use funds in a GPFSA for eligible medical, dental, vision, and pharmacy expenses.
Limited-Purpose FSA (LPFSA):
- You can use funds in an LPFSA to pay for eligible dental and vision expenses.

If you and/or your spouse contribute to a Health Savings Account (HSA) during the health FSA plan year, you’re 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 an HSA in the upcoming policy year. If so, we’ll enroll you in an LPFSA.

If you’re not sure what kind of health FSA you have, check out your plan details on the Benefits page of your Gusto account.

	General-purpose FSA	Limited-purpose FSA
Eligible medical expenses	✓
Eligible vision expenses	✓	✓
Eligible dental expenses	✓	✓
Eligible pharmacy expenses	✓

Learn more about eligible expenses from the IRS.

Employer payroll tax benefit

When an employee sets aside pre-tax money for a health FSA, their gross taxable income goes down. Since employers pay Federal Insurance Contributions Act (FICA) taxes on the amount an employee earns, employer taxes are also reduced.

Admins: Set up a health FSA for your company

Here’s what you need to know to set up a health FSA in Gusto.

Company fees to offer a health FSA

Here are the company fees to offer a health FSA with Gusto:

Annual base fee: $200
- The base fee only applies once per year, even if you also offer other benefits through Gusto. Whether you offer just a health FSA or all benefit account types, the total base fee is $200.
Per enrolling employee:
- $4 per enrolling employee per month, with a $20 minimum
- An enrolling employee is someone with an active benefit in that month or in a runout period.
- For employees who also enroll in an FSA through Gusto, there’s no additional cost for an employee to also enroll in a Dependent Care FSA (DCFSA). Example: The monthly company cost for someone who enrolls in an FSA is $4. The cost for someone who enrolls in both a DCFSA and an FSA is still $4.

Set up a health FSA with Gusto

To set up a health FSA through Gusto, your company needs to 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 a health FSA through a third party, you can set up payroll deductions for your enrolled employees.

Transfer your company's existing health FSA to Gusto

Before transferring your company’s existing health FSA to Gusto, 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 information.

To transfer your company’s existing health FSA to Gusto:

Sign in to your Gusto admin account.
Go to Benefits.
Scroll to All Benefits and choose Flexible Spending Account - Medical.
Click Set up.
Choose Yes, we currently offer a Health FSA to our employees.
Click Save.

Once you complete the steps in Gusto, we’ll start setting up your benefit and contact you with the next steps.

Use non-discrimination testing to stay compliant with your health FSA

Non-discrimination testing helps make sure your benefits are fair and do not favor only highly paid or key employees. For FSAs, a common test is the key employee concentration test. For Dependent Care FSAs (DCFSA), both the key employee concentration test and the average benefits test are commonly used. You should talk to a tax expert or legal counsel to find out which tests your company needs to do.

Non-discrimination testing timeline

It’s a good idea to run non-discrimination tests three times each policy year to avoid problems with the IRS:

Right after open enrollment. This helps you see if you’re likely to pass before the benefit policy year begins.
2 – 3 months before your plan renews. This shows if you’re still on track to pass at the end of the policy year.
End of the policy year. This confirms if you passed the test for that year.

What to do if you have concerns about failing non-discrimination tests

If you’re worried about failing these tests throughout the policy year, talk to your tax expert or legal counsel to decide what to do. Then contact our team so we can help you adjust your benefits. To contact us, sign in to your Gusto account and click the help icon

in the top-right corner of the page.

We might suggest three options:

Highly paid or key employees can lower or stop adding money to their benefits.
More regular employees can join the plan, so things are more balanced.

If your company fails the test at the end of the policy year, you may need to make the benefits taxable. This means employees pay taxes on the benefits, and the company also pays payroll taxes.

Key employee concentration testing

The key employee concentration test checks that key employees make up no more than 25% of the total benefits used by all employees. Total benefits include medical, dental, and vision premiums for both employees and dependents. If no key employees join the health FSA, your company automatically passes the test.

If key employees use more than 25% of the total annual benefits, your company will likely fail the test at the end of the policy year.

How to identify key employees per the IRS

The IRS says a key employee:

Is an officer who makes more than $175,000, OR
Is an employee or officer who, for the length of the policy year, is either of the following:
- A 5% or greater owner of the business, OR
- A 1% – 4.99% owner of the business whose annual pay is more than $150,000

Average benefits testing

The average benefits test is used in different cases, but for Gusto customers, it’s most important for DCFSAs. It checks that regular employees put in at least 55% as much as highly paid employees in the DCFSA.

It’s hard to know if you’ll pass this test until open enrollment ends, since it depends on who joins the DCFSA. New employees joining or others leaving can also change your results during the year.

How to identify highly paid employees per the IRS

The IRS says a highly paid employee is someone who:

Owns more than 5% of the outstanding stock or total voting power of a corporation or 5% of capital profits interest if not a corporation at any time during the policy year, OR
Made more than $120,000 last year OR
Was among the top 20% of earners last year

If most of your team owns part of the company or earns more than $120k, the DCFSA may not be a good fit.

Exceptions to those considered highly paid by the IRS

These employees do not count as part of the top-paid group:

Have worked for less than 6 months, OR
Usually work less than 17.5 hours per week, OR
Usually work less than 6 months in a year, OR
Are under 21 years of age

Note: This article is for general and educational reference only and is accurate as of April 1, 2019. Since IRS laws are complex and frequently change, we recommend working with a tax professional to perform non-discrimination testing.

Here’s some more information on the specific IRS regulations about non-discrimination testing:

Internal Revenue Code (IRC) Section 125
- 26 U.S. Code § 125. Cafeteria plans
Internal Revenue Code (IRC) Section 105
- 26 U.S. Code § 105. Amounts received under accident and health plans
Internal Revenue Code (IRC) Section 129
- 26 U.S. Code § 129. Dependent care assistance programs

Employees: Enroll in your company's health FSA

Here’s what you need to know about enrolling in a health FSA as an employee.

Health FSA enrollment instructions

Learn when you can enroll in a health FSA and how to go about actually enrolling in one.

When you can enroll in a Health FSA

If your employer offers a health FSA and you’re eligible, you can enroll through Gusto:

As a new hire
During open enrollment
If you’ve experienced a qualifying life event

Enroll in a health FSA

To enroll in or waive enrolling in a health FSA:

Sign in to your Gusto employee account.
Click Benefits.
- Alternatively, from your Home page, under Enroll in or waive health benefits, click Let’s do it.
- If you do not see this, you may not be currently eligible to enroll in an FSA. If you’ve experienced a qualifying life event, learn how to change your benefits outside open enrollment.
Click Edit enrollees.
Part 1: Who’s covered
- Make sure all your information is up to date. If it’s not, contact your admin.
- Add dependents and their information if needed. Dependents will be added as claimants in the Benefits Card Hub, where you’ll manage your FSA. Remember that while you can add any dependent in this step, you can only use health FSA funds on eligible dependents. Once enrolled, you can add or remove dependents anytime in the Benefits Card Hub.
- Click Save & continue.
Part 2: Choose Benefits. Next to Health FSA, select Enroll or Waive.
- To enroll in the health FSA, choose Enroll. To opt out, choose Waive.
- If enrolling, answer the questions to determine which health FSA you’re eligible for. Check out the Health FSA overview section to learn the difference between an FSA and a Limited-Purpose FSA.
- Enter the amount you’d like to contribute to the health FSA for the plan year. If the policy year is less than 12 months, the IRS prorates the contribution maximum based on the year the plan started and the number of months left in the policy year.
- Click Save & continue.
Part 3: Extra information
- Answer any questions here and select Save & Continue.
Part 4: Sign forms
- If applicable, e-sign any forms here. Then click Confirm selections.

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 on the Benefits page 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.

Employees: Use your health FSA (Benefits Card Hub)

Your health FSA gives you flexible options to pay for your medical expenses.

How to use your health FSA funds

There are three ways you can use your health FSA funds on eligible expenses:

Swipe your card at an eligible vendor.
- Save your receipt. We may email you if the IRS requires more documentation for the transaction.
- Some vendors do not allow the IRS to verify that your purchase is for an eligible expense. If this happens, the system may deny the transaction at the point of sale. You can pay out of pocket, save your receipt, then submit the health FSA expense for reimbursement.
Pay out of pocket and submit the health FSA expense for reimbursement.
Pay a bill by sending a check directly to the provider.

Eligible expenses

Here’s what makes an expense eligible:

The service is eligible — check out the list of eligible expenses.
The service happened during the eligible spending period, also known as the policy year.
- The eligible spending period includes your policy year and the grace period, if your company offers one. You can see your plan details on the Benefits page of your account.
The service is not in the future.

When your plan year ends or you leave your company, you may have extra time to submit claims.

Access your Benefits Card Hub

Learn how to access and use your Benefits Card Hub.

Manage your Gusto benefits card

Learn about managing your Gusto benefits card, including activating it, ordering a card for yourself or a dependent, and more.

Submit a health FSA expense for reimbursement

You can review and manage your expenses in the Benefits Card Hub: Under My Accounts, click FSA.

Add or edit a health FSA reimbursement method

You can choose to be reimbursed by check, direct deposit, Venmo, or PayPal.

To add or edit a reiumbursement method:

Access the Benefits Card Hub.
In the top-right corner, click on your initials.
Click Manage Account.
Click Reimbursement Options.
Choose Add Payment Method.
Fill out the prompts.

Note: Adding a bank account can take 2 – 3 business days to verify.

Health FSA receipt requirements

To make sure your documentation meets IRS criteria, make sure it includes:

Provider name
- The name of the facility or doctor who provided the service, or the name of the store where you purchased the item
Patient name
- The person who received the service or purchased the item
Dates of service
- The date(s) on which someone performed the service or the date of purchase
- The bill date is not the same as the date of service.
Cost of service
- The amount of the service or item after insurance payments. We will not approve receipts that indicate “estimated insurance payments.”
Summary of services received
- A summary of the service(s) performed or item(s) purchased

Note: Documents changed by hand or in any other way will not be accepted as proof for a claim.

Submit a health FSA expense for reimbursement

If you paid out of pocket for an eligible expense, you may submit it for reimbursement as long as the service occurred during your coverage period, and the final date to submit claims has not passed.

To submit a health FSA expense for reimbursement:

Access the Benefits Card Hub.
Choose Reimburse Me.
Upload your receipt, bill, or explanation of benefits (EOB).
Review the information on the next page. If everything looks correct, submit the request. If anything needs to be corrected, you can edit the field directly.
Choose your reimbursement method and submit the request.

If we can validate the information right away, we’ll approve your claim on the spot. If we need more review time, you’ll get an email when we process the claim. This typically takes 3 – 5 business days.

Get reimbursed

If we approve your claim, we’ll reimburse you using the reimbursement method you’ve chosen:

Check: We’ll mail a check to your home address in a plain envelope. If you have not cashed the check, you can still update your reimbursement method to direct deposit, Venmo, or PayPal in the Benefits Card Hub.
Direct deposit: Your chosen bank account will get the Automated Clearing House (ACH) within 1 – 3 days. It will appear on your bank statement as “Gusto PayClaim.”
Venmo/PayPal: We’ll send payment instantly from Elevate to your Venmo or PayPal account. You’ll pay a fee of $1 per transaction for this service.

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 you had during your employment. You can confirm your last day to submit an expense in the Benefits Card Hub.

If you did not register for the Benefits Card Hub during your employment, we can help. To contact us, sign in to your Gusto account and click the help icon

in the top-right corner of the page.

Pay a health FSA 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 a health FSA expense for reimbursement.”

To pay a bill directly:

Access the Benefits Card Hub.
Choose Pay a bill.
Upload your receipt.
Review the information on the next page. If all looks correct, submit the request.

If we can identify all the required information in the receipt, we’ll automatically approve your claim and pay the provider by check. If not, we’ll manually review the claim within 3 - 5 business days. You’ll get an email once we’ve reviewed and processed the claim.

Important: Checks expire after 180 days. If a check is about to expire, you’ll receive an email. If we sent the check to your provider, contact them first about the payment.

Resolve a health FSA expense that requires action

The IRS requires that we validate the eligibility of each health FSA expense. We’ll email you if an expense requires more information to complete this validation. You’ll also see it as a notification on your Benefits Card Hub homepage.

To resolve an expense requiring action:

Access the Benefits Card Hub.
Click Expense Details.
Filter for the status Needs help.
Click the expense that needs help.
You’ll see a note that provides more detail on what we need. If we need more documentation, you can upload the documentation it directly.

We’ll review your documentation and email you with an update within 3 – 5 business days.

Here’s what your documentation should include:

Provider name
- The name of the facility or doctor who provided the service, or the name of the store where you purchased the item
Patient name
- The person who received the service or purchased the item
Dates of service
- The date(s) on which someone performed the service or the date of purchase
- The bill date is not the same as the date of service.
Cost of service
- The amount of the service or item after insurance payments. We will not approve receipts that indicate “estimated insurance payments.”
Summary of services received
- A summary of the service(s) performed or item(s) purchased

Note: Documents changed by hand or in any other way will not be accepted as proof for a claim.

Pay back an ineligible expense

We’ll email you if you used your Gusto Benefits Card on an ineligible expense. To make sure you’re using the account’s funds according to IRS standards, you should resolve this expense before the account expires.

To resolve an ineligible expense, you can either pay it back within the Benefits Card Hub or by mailing a check.

Option 1: Pay the expense back via the Benefits Card Hub

If a repayment is required, go to your Benefits Card Hub and find the expense that was ineligible and shows a balance due. You'll have the option to repay it using your connected bank account.

Option 2: Pay the expense back via check

Mail a check for the amount of the transaction to:

Elevate HCS
PO Box 875050
Kansas City, MO 64187-5050

Employees: Manage your health FSA (Benefits Card Hub)

Expand the sections for more ways to manage your benefits.

Change or cancel your health FSA contribution

The contribution amount you choose during your enrollment locks in for the remainder of the company’s policy year. You can only change your health 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 learn about the steps needed to change your health FSA contribution in Gusto.

Here are the contribution changes you can make:

If you want to decrease your contribution, you can only lower it to the amount that you’ve already contributed.
If you want to increase your contribution, you can only contribute up to the IRS maximum.
When you make your change in Gusto, enter the new total contribution you want to have made by the end of the plan year.

Life events that qualify you to change your FSA

Event	Changes you can make
Relocation (only if it leads to a change in the cost of coverage)	If the cost of coverage increases: You can increase your contribution. If the cost of coverage decreases: You can decrease your contribution.
Court order	Enroll in an FSA. Increase your contribution.
Birth or adoption	Enroll in an FSA. Increase your contribution.
Marriage, domestic partnership, or civil union	Enroll in an FSA. Increase your contribution. If you’re enrolling in your partner’s FSA, you can cancel your Gusto FSA or decrease your contribution.
Divorce or legal separation	Enroll in an FSA. Add affected dependents to coverage. Remove former partner and their dependents from your FSA or decrease your contribution.
You enroll in a different FSA	Decrease FSA contribution.
Your dependent enrolls in a different FSA	Remove the dependent from your FSA. Decrease your contribution.
You or a dependent gain eligibility for an FSA	Enroll in an FSA. Increase your contribution.
You aged out of a parent's plan	Enroll in an FSA Increase your contribution
Death of a dependent	Cancel coverage for the dependent. Decrease your contribution.
Dependent lost other coverage	Enroll dependent in coverage. Change plans to support added dependent(s).
International relocation	Cancel coverage if you or a dependent has moved to another country. Add or change coverage if you or your dependent has moved to the US from another country.

Download health FSA tax forms and plan documents

No tax forms are required for health FSA benefits.

Employees: What happens after your health FSA plan ends

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.
Go to Benefits.
Click the FSA tile.
Click Sign In to open the Benefits Card Hub.

End of the health FSA plan year

If your plan year has ended or your company has canceled the health FSA, you may still have access to your funds during the runout period, grace period, or through a rollover.

If your company is switching from Gusto or using a new insurance broker, ask your employer if your health FSA will be moved too. In these cases, you cannot submit expenses for reimbursement after the plan ends.

How long you have to submit claims (runout period)

After your company’s plan year ends, you have 90 days to submit claims for services that occurred during that plan year. This is called the runout period.

Your reimbursement request(s) must be for services you received while you were covered. If you have two different health FSA accounts, you’ll need to submit separate requests for each one.

Besides the runout period, your plan may have a grace period or a rollover option. To find out what your plan includes and the deadline for submitting claims, check the Health FSA tile on the Benefits page of your Gusto account.

Extra time to spend health FSA funds (grace period)

If your company offers a grace period, you have extra time to use your health FSA funds for new expenses. A grace period usually lasts 2 months and 15 days.

Carry over unused health FSA funds (rollover)

Usually, health FSA funds are “use it or lose it.” But if your company offers a rollover and you renew your health FSA for the next year, you may be able to carry over some funds.

For plans starting in 2025, the limit is $660. For plans starting in 2024, you can roll over up to $640.

During the 90-day runout period, if rollover is allowed, you may submit claims for past services and use your health FSA card for new expenses. However, you can only use your rollover by submitting a claim. Using your card will deduct money from the current year’s plan, and the transaction will be later denied. Then, you’ll have to pay that money back and submit a claim to be reimbursed.

What happens to unused health FSA funds

After the runout period, grace period, and/or rollover, any unused funds in your health FSA are returned to your company. (The IRS requires this — See Publication 969.)

What happens to your health FSA if you leave your company

Your health FSA ends on your last day of work. Health FSA money is “use it or lose it,” so any funds left after the runout period are lost. If you leave the company before the plan year ends and have already spent all your health FSA money, your company must cover any remaining funds that have not yet been deducted from your paychecks.

Runout period

If you are let go from your job, you still have 90 days from your last day to submit claims for services you received while you were still working. The coverage period starts when your health FSA begins and ends on your last day. For example, if your last day was November 1, you have until January 30 to submit claims. But those claims must be for eligible expenses you had on or before November 1.

Leftover funds

After the 90-day runout period, any health FSA funds left in your account goes back to your employer. Employers are not allowed to give that money back to you in cash.

Keywords: health fsa employee fsa