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Limited Purpose Flex Spending Account (LPFSA)

Limited Purpose
Flexible Spending Account (LPFSA)

Limited Purpose Flexible Spending Accounts (LPFSA)

A limited purpose flexible spending account (LPFSA) is a special type of flexible spending account (FSA) available to employees who have enrolled in a Health Savings Account (HSA).

An HSA is a type of savings account that lets consumers set aside money on a pre-tax basis to pay for qualified medical expenses.

Normally, the Internal Revenue Service (IRS) allows you to have either an HSA or an FSA, but not both. However, you can participate in an HSA and a type of FSA that is “limited” to allowing only dental and vision expenses to be reimbursed. The “limited purpose FSA” (LPFSA) provides you the opportunity to lower your taxable income by submitting out of pocket dental and vision expenses through this unique pre-tax account.

KEY TAKE AWAYS

  • A LPFSA allows you to pay for out of pocket vision and dental expenses.*
  • Unlike a standard FSA, the limited use FSA can be used in tandem with an HSA.
  • A LPFSA is funded with your pretax dollars.
  • *On rare occasion, a limited purpose FSA (LPFSA) can be used for out of pocket medical expenses. For instance, if you incur a valid medical expense that is not covered under your health insurance, you may be able to run that expense through your limited purpose FSA account.

How to use a Limited Purpose Flexible Savings Account (LPFSA) with a Health Savings Account (HSA)

  1. You will elect to participate in a “limited purpose FSA” (LPFSA) and determine how much you wish to take out of your payroll checks on a pre-tax basis to pay for out of pocket dental and vision expenses you expect to incur during the calendar year.**
  2. AdvanStaff will set up a pre-tax deduction based on the annualized amount you elect and split deductions into equal amounts over the entire calendar year (or remainder of the calendar year during which you become eligible to participate).
  3. Deductions will be taken out of your check “pre-tax” which means that you will save federal and state*** taxes on the amounts deducted.
  4. Funds deducted from your check are deposited into your “limited purpose FSA” (LPFSA) and are available for reimbursement as you incur out of pocket dental and vision expenses throughout the calendar year.
  5. You will use a debit card provided by AdvanStaff to pay for out of pocket dental and vision expenses until you have used up the amount that you elected to be set aside for the year.
  6. You must have incurred sufficient out of pocket dental and vision expenses to withdraw all of the money set aside by the end of the calendar year. If you do not incur sufficient expenses, you will lose any balance in the account.
  7. You have 90 days after the end of the calendar year to submit expenses which were incurred during the calendar year.

**While you can’t use your LPFSA balance to pay for qualified medical expenses that aren’t dental or vision costs, you can use your HSA funds to pay for these expenses. Just like a LPFSA, an HSA has the advantage of letting you contribute pretax dollars, so it’s a good way to make your out-of-pocket medical expenses more affordable.

***Some states do not have state income tax so there will be no state income tax savings in those particular states.  Also, some states do not allow LPFSA and FSA funds to be taken out pre-tax. All LPFSA and FSA elections are taken pre-tax at the federal level, however.