What Is a Flex Benefits Card & How Does It Work?

A flex benefits card provides simplified access to pre-tax funds for qualified expenses. Employers typically offer these cards as part of a comprehensive benefits package. This system helps individuals manage specific costs, particularly those related to healthcare, by leveraging tax advantages and offering a convenient way to pay for eligible out-of-pocket expenditures.

Understanding Flex Benefits Cards

A flex benefits card acts as a specialized debit card, providing direct access to funds held within certain pre-tax benefit accounts. These accounts help individuals pay for eligible expenses with money not subject to income taxes. The card accesses underlying accounts, including Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), and Health Reimbursement Arrangements (HRAs).

Flexible Spending Accounts (FSAs)

Flexible Spending Accounts (FSAs) are employer-sponsored plans allowing employees to contribute a portion of their pre-tax salary to cover qualified medical or dependent care expenses. Contributions to an FSA are exempt from federal income, Social Security, and Medicare taxes, which reduces an individual’s taxable income. Employers may also contribute.

Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) offer triple tax advantages: contributions are tax-deductible, funds grow tax-free, and withdrawals are tax-free when used for qualified medical expenses. To be eligible for an HSA, an individual must be enrolled in a high-deductible health plan (HDHP).

Health Reimbursement Arrangements (HRAs)

Health Reimbursement Arrangements (HRAs) are employer-funded plans that reimburse employees for qualified medical expenses and, in some cases, insurance premiums. Employees cannot contribute to an HRA; it is solely funded by the employer. Reimbursements from an HRA are generally tax-free, and employers control the amount allocated and types of expenses covered.

How Your Card Works

Using a flex benefits card for eligible expenses operates similarly to a standard debit or credit card at the point of sale. When making a purchase at a pharmacy, doctor’s office, or other qualified service provider, the card is swiped, and the amount is automatically deducted from the linked benefit account. This direct payment method helps streamline the payment process and reduce immediate out-of-pocket costs.

Substantiation

Maintaining detailed records of all purchases is important. Many transactions, especially for over-the-counter items, require substantiation. Retaining receipts is important, as the plan administrator may request them to confirm the expense meets IRS guidelines for qualified medical expenses.

Eligible Expenses

Common eligible expenses include prescription medications, doctor visit co-pays, deductibles, coinsurance, dental care, vision care (such as eyeglasses and contact lenses), over-the-counter medications, and certain healthcare supplies. If direct card payment is not possible, individuals can pay out-of-pocket and submit a claim for reimbursement with documentation to their plan administrator.

Maximizing Your Card’s Value

Effectively managing funds associated with a flex benefits card involves understanding specific account rules and planning for expenditures. For Flexible Spending Accounts (FSAs), the “use it or lose it” rule means unspent funds may be forfeited at the end of the plan year. Employers can offer exceptions like a grace period (allowing 2.5 additional months) or a limited carryover of unused funds into the next plan year.

HSA Flexibility

Health Savings Accounts (HSAs) offer greater flexibility as funds are not subject to a “use it or lose it” rule. Unused HSA funds roll over year to year, acting as a long-term savings vehicle. The account belongs to the individual, even if they change employers or retire. The ability to invest HSA funds further enhances their long-term value, allowing for tax-free growth.

Strategic Planning

To maximize the value of either account, individuals should estimate their anticipated eligible expenses for the year. Tracking balances helps prevent forfeiture in FSAs and ensures funds are available when needed in HSAs. Reviewing specific plan rules provided by the employer is important, as grace periods, carryovers, and eligible expenses can vary.