You are eligible to participate in FSAs as long as you receive a salary and funding for at least four consecutive months from the University of Michigan. See benefits Eligibility and Enrollment for more information.
Flexible Spending Account contributions cannot be taken from a fellowship grant, a stipend, or from temporary hourly paychecks. You must have sufficient earnings to cover the amount you choose to contribute to an FSA.
Determine How Much to Contribute
Determine the annual contribution you want to make to a Health Care account for health, vision, or dental care for you and your dependents, and/or a Dependent Care account for daycare expenses. Keep in mind that you cannot transfer money between the two accounts, and you cannot transfer participation to your spouse. Only expenses incurred on or after your effective date of coverage are reimbursable from your FSA. There is a grace period until March 15 of the following year for you to spend down money in your FSA. You must file claims for reimbursement by May 31 of the following year.
In accordance with Internal Revenue Code and supporting treasury regulations, the university uses forfeited funds to pay administration costs of the of the FSA program. In the alternative, forfeitures may also be used by the university to fund employee benefits administration costs, education and benefit election tools, MHealthy coaching and health initiatives, the Emergency Hardship Program, and university scholarship funds.
If you are newly hired or newly eligible for benefits, complete the Flexible Spending Account enrollment form and send it to SSC Benefits Transactions within 30 days of your hire date or as specified by your collective bargaining agreement.
Your account becomes effective the first of the month following the date the enrollment form is received by SSC Benefits Transactions, your date of hire, or the date you become newly-eligible, whichever is later. (For example, if your date of hire is March 1, and your Flexible Spending Account enrollment form is received March 10, your account becomes effective April 1). For FSA enrollments during the annual benefits Open Enrollment, accounts are effective January 1.
Only eligible expenses incurred on or after your effective date through March 15 of the following year are eligible for reimbursement from your current year FSA.
When you enroll in an FSA, your annual contribution is taken out of your pay in equal amounts over 12 paychecks if you are paid monthly, and over 24 paychecks if you are paid bi-weekly. In months where there are three paychecks, you will not have a deduction taken from the last paycheck. If you enroll mid-year the deductions will be equally split among the remaining paychecks in the year.
Your FSA contributions do not reduce your pay for determining your life insurance, business travel accident insurance, long-term disability, or retirement benefits provided by the university. However, your FSA contributions will lower your Social Security Wage Base. If you earn the Social Security maximum salary ($132,900 or more for 2019), your FSA contributions will lower your FICA Social Security taxes. Since your Social Security taxes will be calculated after your FSA contributions are deducted from your pay, your Social Security benefits may be slightly lowered as well.
You cannot change or cancel your contribution amount during the year unless you have a qualified family status change, such as marriage, divorce, or the birth of a baby, and the change must be consistent with the change in status. For more information, see Making Changes to Your FSA.
Annual Contribution Limits
Health Care FSA
You may contribute any whole dollar amount between $120 and $2,700. If you and your spouse each have a Health Care FSA, you may each contribute up to the annual maximum to your accounts, however you may not submit the same claims to both accounts, and you may not transfer funds between accounts.
Dependent Care FSA
The minimum annual contribution is $120 and the maximum depends upon your annual earnings in the prior calendar year, your tax filing status, your spouse's annual earnings, and several other factors. The Dependent Care FSA limit is per household.
Special Limits for Highly Compensated Faculty and Staff
The IRS allows pre-tax contributions to Flexible Spending Accounts as long as the plan does not favor highly-compensated employees (HCE) as defined by the IRS. You are considered "highly compensated" if your family gross earnings were $125,000 or more in 2019.
If you are an HCE, your Dependent Care FSA deduction may not exceed $3,600 per family for a married couple filing jointly, or for a single parent. For an HCE married person filing separately, the limit is $2,500. If you are an HCE and are hired after January 1, or enroll mid-year due to a qualified status change, the amount per year will be $300 times the number of months you will actually be enrolled in the plan. For example, if you will be enrolled in the plan for seven months, your maximum contribution will be $2,100.
Maximum Annual Dependent Care FSA Contribution Limits
If your tax filing status is Single, your annual limit is:
- $5,000 if your 2019 earnings were less than $125,000; however, your contributions may not be in excess of your earned income for the plan year
- $3,600 if your 2019 earnings were $125,000 or more
If your tax filing status is Married:
- Filing separately, your annual limit is $2,500 per each spouse.
- Filing jointly, your annual limit is:
- $5,000 per year per family if your 2019 earnings were less than $125,000
- $3,600 per year ($300 per month) per family if your 2019 earnings were $125,000 or more
If you are married, your contributions are limited to the least of the following:
- Your earned income for the plan year, or
- Your spouse's earned income for the plan year
For example, if you earn $35,000 and your spouse earns $4,000, the most you can contribute to your Dependent Care FSA is $4,000.
Dependent Care Tax Credit
Depending on your income, it may be more advantageous to take a Tax Credit when filing your income tax return than paying your expenses through a pre-tax Dependent Care FSA. The PayFlex Savings Calculator may help you determine which is more advantageous. You may also wish to consult a qualified tax advisor.