Introduction
A flexible spending account (FSA) is a tax-advantaged account that allows you to set aside money for medical expenses. FSAs are available to people who work for an employer with a cafeteria plan and have flexible spending accounts, or FSAs.
Expiration
Your FSA funds must be used by the end of the plan year. If you don’t use your funds by this time, you will lose them. You can’t carry over unused funds from one plan year to the next. The rules for rolling over your FSA dollars into a new plan are complicated and depend on your employer’s policies, so be sure to check with them before you roll over any money.
Eligibility
In order to be eligible for the FSA, you must meet specific requirements. You may be eligible if:
- You are self-employed
- You are a part-time employee
- You are a full-time employee
- Your spouse is an employee (or former employee) of your company and uses the plan for dependent care expenses that are not reimbursed by their employer. In this case, the individual’s coverage may take effect when he or she becomes disabled or retires from active service in the armed forces (retired pay counts as earned income).
Dental and Eye Care
Dental and eye care expenses are eligible for reimbursement with a Flexible Spending Account.
You can’t use FSA funds to pay for cosmetic procedures, such as teeth whitening or lip augmentation surgery. But you can use it to pay for orthodontia if your insurance doesn’t cover it. You can also use it to buy contact lenses or glasses, as well as eye exams and vision therapy (if you have an eye condition). Remember that these benefits have yearly caps, so make sure you spend them responsibly!
Prescription Medicine
Prescription medicines. If you need prescription medicines, your FSA can be used to purchase them. You are responsible for obtaining the prescription from a physician and paying the full cost of the medicine before submitting receipts to your employer for reimbursement.
Your plan may allow you to use your FSA dollars to pay for over-the-counter (OTC) medications as well as insulin and other medical equipment, such as diabetes test strips or glucose monitors. However, not all plans will cover OTC items; check with your employer or benefits administrator if you aren’t sure whether these expenses are eligible for reimbursement under your plan’s terms.
Tax Benefits
If you are not eligible for the Saver’s Credit, the FSA is one of your best options for tax-advantaged retirement savings. The contributions are not taxed, and distributions from an FSA won’t be taxed or penalized if used for eligible expenses.
However, if you don’t use all of the money in your FSA account by December 31st of that year (for example: if you didn’t get sick during a given year), then 20% will be withheld from any future distributions that year as a penalty for taking it out earlier than expected. For this reason, it’s important to maximize your use of an HSA or MSA by exhausting any remaining funds at the end of each calendar year rather than waiting until after December 31st before withdrawing cash from these accounts.
Contribution Maximum
Contribution maximum: The maximum amount you can contribute to your FSA.
How to calculate the maximum amount: If you’re eligible, then add up all of your eligible expenses for that year and multiply by $250 (for 2019). For example, if you have $1,000 in eligible expenses in 2019 and are not a high-deductible health plan participant, then the most you could contribute is $2,750—$1,000 x 2 (2 times 250). If at least one member of your family has had high medical bills during that calendar year—even if they aren’t an employee with access to an FSA—then the contribution limit rises to $3,600. This is because some employers allow employees who use a Flexible Spending Account at work as part of an overall cafeteria plan (which allows employees to choose between taxable cash pay or non-taxable benefits) to bring their remaining unused funds over into their spouse’s account if theirs was exhausted for that year.
With an FSA, you can set aside money tax-free to pay for eligible health care expenses.
An FSA is a tax-advantaged account available to individuals who have a high deductible health plan. FSAs can be used to pay for eligible health care expenses, such as deductibles and copays (you’ll find specific details about what qualifies on the IRS website). And it’s important to note that these accounts are funded by pretax dollars—meaning you don’t have to pay any taxes on your contributions until you withdraw from the account.
So what does all of this mean? If you’re eligible for an FSA, it may be possible for you to save money on your tax bill by contributing pretax dollars into your health savings account each year and using those funds to offset some of your medical costs throughout the year.
Conclusion
I hope this guide has helped you to understand how flexible spending accounts work, and how they can help you save money on healthcare expenses. If you need more information on flex spending accounts, or have any questions about them please let me know
