As many companies continue to offer a Flexible Spending Account (FSA) option with their employee benefit plans, I wanted to take a moment to discuss a related question that we occasionally receive: “What is a Limited-Purpose FSA?“
Defining a Limited-Purpose FSA
A limited-purpose FSA is similar to a general-purpose health FSA. The main advantages for an employee remain the same — FSA funds allow them to pay for qualifying expenses tax-free while reducing their taxable income.
However, the major difference between a limited-purpose FSA and a general-purpose health FSA is that there are fewer eligible expenses.
Typical Eligible Limited FSA Expenses
In a limited-purpose FSA, covered health care procedures are limited to dental, vision and preventive care. Those procedures may include:
How Do HSA Rules Apply?
Employees are not allowed to contribute to both a health savings account (HSA) as well as a standard FSA.
However, if they use a limited-purpose FSA for their dental and vision care needs, they are eligible for an HSA.
I hope that you found this information helpful as you seek to understand how a limited-purpose FSA could be utilized by your business.
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