Pre-funded: The employer places the total annual election on the first day the account is opened so the total annual election amount is available on day one of your plan year.
For Health Care FSA/Limited Purpose FSA, the employee must pay back the employer over the course of the year. The money is deducted pretax from the employee's paycheck to pay back the employer.
For HRA, Employees do not have to pay back the annual election to the employer over the course of the year.
Payroll-funded: Funded each pay period pretax. Participants only have access to the funds that have been built into the account. This means you cannot claim the funds that exceed the amount in your account.
- Annual election: The amount of money elected to fund the account. IRS creates limits for the maximum annual election but participants can select any amount under this maximum as approved by the employer. Ideally, the election amount selected will equal the participant's estimated out-of-pocket health care cost for the year which means it’s important to plan carefully so that your election amount does not exceed your expenses.
Please note that you are not allowed to change your election during the plan year unless you experience a Qualifying Life Event (QLE). However, with the Covid-19 Relief Bill passed on 12/21/2020, you may be able to make election changes without a QLE, depending on your employer's rules. Your employer decides on the rules on the accounts they offer. To find out which scenario applies to you, please reach out to email@example.com for help or to your HR benefits team.
How is each CDH account funded pre-tax?
Health Care Flexible Spending Accounts (HCFSAs): Pre-funded
Dependent Care Flexible Spending Accounts (DCFSAs): Payroll-funded with annual election
Limited Purpose Flexible Spending Accounts (LPFSAs): Pre-funded
Health Reimbursement Arrangments (HRAs): Pre-funded
Health Saving Accounts (HSAs): Payroll-funded
Commuter Benefit Accounts: Payroll-funded