Users Intent
context Variations
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.
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 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.
Any employee eligible for health benefits with your company can participate in the FSA. This means:
These individuals cannot participate in a health FSA through Gusto due to IRS requirements:
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.
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.
Besides yourself, you can use health FSA funds on eligible expenses for:
These are defined by IRS Publication 969.
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 $3,300 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.
Employers can, but are not required to contribute to employee accounts.
Eligible employees choose how much they want to contribute during open enrollment.
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.
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.
Health FSA funds are available in full at the start of the plan year, while employee contributions are deducted gradually from each paycheck.
Health FSAs are pre-funded, meaning employees can start spending up to their full election amount on the first day of the plan.
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.
Learn about funding requirements, associated bank debits, and how to reconcile those 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 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’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 | ✓ |
|
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.
Here’s what you need to know to set up a health FSA in Gusto.
Here are the company fees to offer 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.
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:
Once you complete the steps in Gusto, we’ll start setting up your benefit and contact you with the next steps.
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.
It’s a good idea to run non-discrimination tests three times each policy year to avoid problems with the IRS:
We might suggest three options:
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.
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:
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:
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:
Here’s some more information on the specific IRS regulations about non-discrimination testing:
Here’s what you need to know about enrolling in a health FSA as an employee.
Learn when you can enroll in a health FSA and how to go about actually enrolling in one.
If your employer offers a health FSA and you’re eligible, you can enroll through Gusto:
To enroll in or waive enrolling in a health FSA:
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.
Your health FSA gives you flexible options to pay for your medical expenses.
There are three ways you can use your health FSA 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.
You can review and manage your expenses in the Benefits Card Hub: Under My Accounts, click FSA.
You can choose to be reimbursed by check, direct deposit, Venmo, or PayPal.
To add or edit a reiumbursement method:
To make sure your documentation meets IRS criteria, make sure it includes:
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:
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.
If we approve your claim, we’ll reimburse you using the reimbursement method you’ve chosen:
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 iconIf 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:
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.
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:
We’ll review your documentation and email you with an update within 3 – 5 business days.
Here’s what your documentation should include:
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:
Expand the sections for more ways to manage your benefits.
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:
| Event | Changes you can make |
| Relocation (only if it leads to a change in the cost of coverage) |
|
| Court order |
|
| Birth or adoption |
|
| Marriage, domestic partnership, or civil union |
|
| Divorce or legal separation |
|
| You enroll in a different FSA |
|
| Your dependent enrolls in a different FSA |
|
| You or a dependent gain eligibility for an FSA |
|
| You aged out of a parent's plan |
|
| Death of a dependent |
|
| Dependent lost other coverage |
|
| International relocation |
|
No tax forms are 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:
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.
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.
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.
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.
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.)
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.
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.
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.