The Limited Purpose Flexible Spending Account (LPFSA) is a savings account that lets employees set aside money before tax for medical expenditures like vision and dental. Usually, medical insurance does not cover these two areas, so LPFSA comes into use.
Employees can open an LPFSA when enrolled in a Health Savings Account (HSA) through their employers.
Employees with a High-Deductible Healthcare Plan (HDHP) are qualified to open an LPFSA. However, an employer must offer this savings account to be eligible to apply.
The LPFSA is not available for freelancers or self-employed employees. But, if they want to attain health cost tax advantages, they can apply for a Health Savings Account (HSA) if they hold an HDHP.
Moreover, unemployed individuals or retired employees cannot open an LPFSA. The medical expense account is only for individuals currently involved in a company.
The condition for opening a Limited Purpose FSA is to have a qualified HDHP. So, if an individual does not hold an HDHP, they won’t be able to enroll in LPFSA.
According to the Internal Revenue Service (IRS), an employee has to choose between holding an HSA or an LPFSA, but they cannot have both. But this can change if your employer authorizes it.
LPFSA benefits employees and their dependents, such as spouses, children, or other dependents.
The Internal Revenue Service (IRS) annually updates the contribution limit for LPFSA. In 2022, the contribution limit went up by $100, totaling $2,850. But, it is best not to save more than required because you will lose the money at the end of the year if it has not been used.
An employee can use their Limited Purpose FSA while having an HDHP on the following occasions:
An LPFSA only covers qualified expenses, which are usually for preventive care. It will not cover any cosmetic costs, such as teeth whitening.
Visits to optometrists, Orthodontists, and dental hygienists will also qualify as an LPFSA medical expense.
Here is a small list of services that will be covered by a Limited Purpose FSA:
A Limited Purpose FSA is an exceptional savings account that lets you save for dental and vision problems. But, it does have two limitations.