Flexible Spending Accounts

[Tommy Trussell]

On Mon, Jul 13, 2009 at 12:45 PM, Robin
Chattopadhyay<robinraymn at gmail.com> wrote:
> Hi-
>
> I have a Flexible Spending Account (FSA) that can be used for medical
> expenses using pre-tax dollars. I track the available balance of the FSA in
> Gnucash, but I'm not really thrilled with the way I've chosen to account for
> it.
>
> On January 1, the witholding amount I selected during the open enrollment
> process is credited to my account at the FSA provider. The entire amount is
> credited, even though the withholding is divided by the number of pay
> periods in the year; so, conceivably, I could spend the entire amount on
> Jan. 1 and have nothing in the account for the rest of the year.
>
> My problem is how to account for this. Currently, I have an asset account
> called Health FSA that was credited with $260 on 1/1/09 and an offset debit
> to my Opening Balance Equity account. Any healthcare related expenses that I
> use the FSA dollars for are debited from this account and an offsetting
> credit is made to the corresponding Expense account. So far, so good (I
> think).
>
> My problem is the $10 per pay period that is withheld from my paycheck for
> the FSA contribution. Right now, I credit the Opening Balance Equity and
> debit the appropriate Income account.
>
> At the end of the year, the $260 debit to the Equity Opening Balance account
> is offset by the twenty-six $10 credits.
>
> As I said, I'm not thrilled with my choice to use the Equity Opening Balance
> account for this because it looks odd to me to have the balance of the
> Opening Balance account change throughout the reporting period.
>
> Any suggestions for a "better" way to do this? Perhaps a separate "Deferred
> Income" liability account?

I set up my wife's FSA as an asset account, and it's funded as a
reduction in income from her paycheck. Technically you might not want
to count it as a reduction of income, because some entities might
count it that way and some don't, however that probably requires more
trouble than it's worth -- the employer's tax statement at the end of
the year will have those calculations. As you surmise, the big thing
is to be sure you don't underspend or overspend by the end of the year
because you might either lose the extra or incur a penalty (depending
on how yours works).

For an additional expense, we had our benefits company issue a special
debit card (that we use at the pharmacy or doctor's office like a
credit card), and I believe it sets the total limit for the entire
year on January 1st, based on the per-paycheck amount set in November
the previous year, assuming she will be employed the entire calendar
year.

SO if I were modeling that specific situation I would transfer the
total benefit ONCE on January 1st, and spend the amount down as
needed. However, I don't bother -- I just transfer the amount per
paycheck and check the numbers to spend the final amount when we get
to December. (My wife's benefit company allows us to apply current
year charges until March 1st the following year, so I used to set up a
NEW FSA account each year. But now I just try harder to spend it down
by the end of each year.)

BUT to summarize, my FSA account is a current asset funded by a
reduction in the income from my wife's paycheck. Ultimately the
reduction in income matters little because my accountant looks at the
year-end benefits statement preferentially over my GnuCash numbers,
and that's safest because the figures depend on who is doing the
taxing.

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