It is a tax-advantaged savings account that allows employees to set aside pre-tax dollars to pay for eligible healthcare expenses. Unlike a regular FSA, which can be used for a wide range of medical expenses, a Limited Purpose FSA is specifically designed to cover qualified dental and vision expenses. The main advantage of a Limited Purpose FSA is that it allows employees to save money on their healthcare costs by using pre-tax dollars. By contributing to this account, employees can reduce their taxable income and potentially lower their overall tax liability. However, it's important to note that a Limited Purpose FSA cannot be used for general medical expenses such as doctor visits, prescription medications, or over-the-counter drugs. Instead, it is limited to covering eligible dental and vision expenses, such as dental cleanings, orthodontic treatments, eye exams, glasses, contact lenses, and certain vision correction surgeries. Employers typically offer Limited Purpose FSAs as part of their employee benefits package. Employees can contribute a portion of their salary to the account through regular payroll deductions. The funds in the account can then be used throughout the year to pay for eligible dental and vision expenses. It's worth mentioning that the funds in a Limited Purpose FSA are subject to the "use-it-or-lose-it" rule. Any unused funds at the plan year's end are forfeited unless the employer offers a grace period or a carryover option. Therefore, it's important for employees to carefully estimate their expected dental and vision expenses carefully when deciding how much to contribute to their Limited Purpose FSA.
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