When you participate in a flexible spending account (FSA), you’re putting money into an account before it is taxed so you can save on eligible expenses. There are four common types of FSAs. One of them — a combination FSA — can have different sets of eligible expenses based on you reaching an IRS deductible.
What is a combination FSA?
A combination FSA (also known as a post-deductible FSA) is an employer-owned account that initially works like a limited FSA, which covers eligible dental, vision, and preventative care expenses. However, once participants reach the IRS statutory deductible, the account can be used on eligible medical expenses, just like a general-purpose FSA.
IRS statutory deductible
Contributions to a combination FSA and withdrawals for eligible expenses are tax-free.
What expenses are eligible?
Prior to reaching the IRS statutory deductible, combination FSA funds can be spent on the same eligible expenses as a limited medical FSA. Common expenses include dental cleanings and eye exams.
Once the IRS statutory deductible is met, the combination FSA becomes a general-purpose medical FSA. Eligible expenses include all of the expenses you had with a limited FSA, plus eligible medical expenses such as bandages and thermometers.
What benefits can be paired with a combination FSA?
The combination FSA can be paired with a variety of different benefits. For example, like a limited FSA, a combination FSA can be paired with a health savings account (HSA). This allowed HSA participants with a combination FSA to focus their combination FSA on their short-term needs, while using their HSA to help support their long-term and retirement-planning strategy.