Getting Started With Company FSAs in Zenefits

Here are the key features of Flexible Spending Accounts that you should know. They'll help you decide if FSAs are right for you and your employees.

What is an FSA?

A flexible spending account (FSA) allows eligible employees to set aside pre-tax money via payroll deductions into a tax-free account and use this money to pay for eligible health care expenses. Zenefits offers two types of FSAs:

  • Health Care FSAs pay for out-of-pocket health care expenses (e.g., doctor copays, prescriptions, deductible expenses, and other FSA Eligible Expenses) not covered by insurance.
  • Child & Elderly Care FSAs pay for the care of a dependent child or adult so that employees can work or look for work (Learn More).

Employees can enroll in one or both types simultaneously in Zenefits. See this page for a comparison of the primary differences between Health Care and Child & Elderly Care FSAs. The only eligibility requirement for FSA is that the employee is offered benefits. They do not have to enroll in benefits, but the company just needs to offer medical benefits to the employee. 

Why should I offer FSAs to my employees?

Offering FSAs can help your company and your employees in the following ways:

  • FSAs help employees make the most of their salaries while paying less in taxes.
  • FSAs can help you reduce your employment taxes.
  • FSAs can help attract top talent and drive retention when promoted as part of your company's benefits package.

Learn more about the tax savings of FSAs for employers and employees.

Who pays for an FSA?

Employees fund their FSAs through payroll deductions, but pay no fees for the accounts themselves. As an employer, you pay annual and monthly fees for your employees' FSA accounts. You can also choose to make optional contributions to your employees' FSAs.


Many companies choose to start a new FSA plan at the same time as their insurance.

What are the employer deadlines for FSA enrollment?

Complete setup by the 15th of the month prior to your chosen start date. This lead time gives your employees a minimum of 10 days to decide whether to enroll.

If you complete setup after the 15th, the earliest your plan can start is the 1st of the month after next so that your employees still have at least 10 days to decide.

What are the employee deadlines for FSA enrollment?

Once the company plan is set up, individual workers will need to complete enrollment by the 25th to start on the 1st of the next month. Anyone who misses the deadline will not be able to enroll until the next renewal, unless they have a qualifying life event.

Keep in mind that enrollees won't be able use the FSA funds until after their plans start, or get reimbursed for purchases made prior to the start of their plans.

What FSA plan year end date should I choose?

The start date you choose can also determine when the plan renews:

  • Choose a Full Plan Year End Date to have the FSA renew one year from the start date. If that date is the start of your insurance plans, workers will go through Open Enrollment for both FSA and insurance around the same time.
  • Choose a Calendar Plan Year End Date to have the FSA line up with the calendar year. 

If you choose the Calendar Plan Year option, your FSA plan year will be different from your contract's term, and you'll be charged the annual fee twice: once at the start of the Calendar Plan Year, and again when the plan renews in January.

You can also set optional and separate contributions to your employees' Medical and/or Dependent Care FSAs when you set up the plan, before employees choose their own contributions.

How much can I contribute to employees' Medical FSAs?

You can match employee's Medical FSA contributions from $0 up to the maximum of $2750 ( 2020 annual limit) and $2700 (2019 annual limit). Since you can't predict ahead of time what employees elect, if any individual employee sets contribution amounts less than yours, Zenefits simply reduces your contribution to match theirs. 

If the FSA is a shortened plan year then the maximum contribution and matching amount will be prorated. So if the company is enrolled in the FSA effective 7/1 through 12 /31, the employee would only be able to contribute half of the maximum amount, which would be $1375 for 2020. This would then be the maximum that the employer is able to match.

How much can I contribute to employees' Dependent Care FSAs?

The maximum annual amount you can contribute to a Child & Elderly Care FSA depends on which filing status you choose on your federal tax return.

If you choose a filing status of:

  • Single or married, filing jointly, you can contribute up to $5000.
  • Married, filing separately, you and your spouse can each contribute up to $2500 each.

Learn more.

How do I choose the right amount for either?

How much you choose to contribute to your employees' FSAs is up to you, but here are some things to consider when you're making the decision.

  • The amounts you set for each type are the annual amounts you'll contribute to each employee who enrolls in that type, so consider the possibility that all eligible employees enroll when determining how much you're willing to spend.
  • You can't change your contributions after the plan starts until the end of the plan year, during renewal.
  • Employees will be able to see the amounts you've chosen to contribute for both Medical and Dependent Care FSAs when they enroll.

FSAs are "use it or lose it" accounts: any funds that employees haven't spent at the end of the year return to the employer. However, your employees have a 90-day run-out from the end of the year to submit claims for expenses during the plan year. You'll also have the option when you set up the plan to give your employee a little more flexibility at the end of the runout period by choosing one of two plan end types

What FSA plan year end date should I choose?

The start date you choose can also determine when the plan renews:

  • Choose a Full Plan Year End Date to have the FSA renew one year from the start date. If that date is the start of your insurance plans, workers will go through Open Enrollment for both FSA and insurance around the same time.
  • Choose a Calendar Plan Year End Date to have the FSA line up with the calendar year. 

If you choose the Calendar Plan Year option, your FSA plan year will be different from your contract's term, and you'll be charged the annual fee twice: once at the start of the Calendar Plan Year, and again when the plan renews in January.

To set up a Company FSA, one of the company's administrators may sign into their account, and click on the Flexible Spending Account app. You may then follow the prompts to set the FSA up. The FSA needs to be set up on or before the 15th of the month to be effective the first of the very next month.

Like other tax-free accounts under IRS Sections 105 and 125, FSAs  are subject to non-discrimination testing to determine whether the plan is compliant with IRS guidelines and that all your employees receive the same level of benefit from their FSAs.

Which of my employees are highly compensated for compliance testing purposes?

Generally speaking, employees who own more than 5% of your company or make over $125,000 a year are considered highly-compensated for compliance testing purposes. 

Which of my employees are key employees for compliance testing purposes?

Generally speaking, key employees are officers (CEO, COO, President) who make over $180,000 a year, employees (and family members) who own 5% or more of your company, and employees who own over 1% of your company and make over $150,000 a year. 

When you complete setup for a new company FSA, Zenefits will process the application, email you to let you know you're all set, and email your employees to let them know they can enroll in their own FSAs. Follow these next steps to prepare for the start of your plan.

Preparing your payroll for FSA deductions

If you use Zenefits Pay Connect with your payroll, do the following before your FSA plan starts:

  1. Create FSA deduction descriptions (also called "codes") in your payroll account. If you're not sure how to do this within your payroll provider's system, reach out to them for further assistance. If you already have codes with prior FSA deduction amounts, make sure to zero these amounts out.
  2. Use the Deduction Mapping Tool to map your FSA deduction codes to Zenefits. Learn more about mapping deduction codes.

If you have Payroll Reports or Zenefits Payroll, you're all set!

Preparing to manage your FSA

To get started with managing your company's FSA plan, see this guide to Managing a Company FSA with Zenefits.

Health Care FSAs are funded by employer transfers using funds deducted on a monthly basis from an employee's paycheck.

The process below describes how FSA accounts are funded.

  1. Employer "front-loads" the funds for employee FSA accounts.
  2. The employer deducts the contribution amount every month from the employee's paycheck.
  3. That money is then held in the company's bank account.
  4. When an employee uses their Zenefits debit card for medical expenses, the FSA provider pays the bill.
  5. On a daily basis, the FSA provider will bill the company for any expenses incurred for that day. The employer would pay the FSA provider from their account (including the money deducted from employees' paychecks).
  6. Card swipes will be displayed as Med-i-Bank, and manual claims will be displayed as Zenefits- Alegeus on the company's bank statement. Learn more.

Example of how FSA funding works for an Employee:

  • Employee elects $1200 for their FSA with a plan year of January 1st, 2018  through December 31st, 2018.
  • On January 1st, 2018, this employee receives $1200 in his FSA account, which is funded by their employer.
  • When the employee swipes their ZFB card or submits claims, the funds are debited from the company’s bank account.
  • Each month, this employee will contribute $100 over the plan year of 12 months to pay back the employer for these funds.
Dependent Care FSA accounts are funded as the employee is deducted from payroll. Dependent Care FSA's are not frontloaded.

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