Why Should You Use A Flexible Spending Account (FSA)
Why Should You Use A Flexible Spending Account (FSA)
Tips on how to use your flexible spending account to its full potential
If you have a health plan through a job, you can use a Flexible Spending Account (FSA) to pay for copayments, deductibles, some drugs, and any other health care costs. Using an FSA can reduce your taxes. Experts say an FSA is suitable for people with any level of health costs. “It’s the simplest and easiest way to give yourself a raise,” says Dr. Shyamali Singhal. “Almost everybody has some level of predictable, ongoing, unreimbursed medical expenses. Pre-tax dollars just go further than after-tax dollars. It’s putting money in your pocket.”
What Is A Flexible Spending Account?
A Flexible Spending Account - also known as a flexible spending arrangement - is a special account you put money into that you use to pay for certain out-of-pocket health care costs. You don’t pay taxes on this money. This indicates you’ll save an amount equivalent to the taxes you would have paid on the money you set aside. Employers may secure participation in your FSA but they aren’t obligated to.
A flexible spending account (FSA) is a type of savings account that provides the account holder with specific tax benefits. An FSA (not to be confused with an HSA), seldom called a flexible spending arrangement, is set up by an employer for an employee. The account allows employees to provide a share of their regular assets to meet for qualified costs associated with medical and dental charges.
Whether it’s open enrollment or you’re beginning work at a new company that offers an FSA, you’ll want to know what it is and how to use it before you sign up. Depending on the extent of your health costs, an FSA can help you save a lot of money on care. But if you contribute more than you’ll need to spend on medical care this year, an FSA can backfire, as any remaining funds will disappear.
How To Use Your FSA
You use your FSA by submitting a claim to the FSA (through your employer) with proof of the medical expense and a statement that it has not been met by your plan. You will then collect compensation for your costs. Ask your employer about how to use your specific FSA.
All the money set aside in an FSA generally must be used by the end of the plan year, however, employers can offer a grace period of up to two-and-a-half months to use that funding.
If that option is not taken, employers might let workers carry over $500 per year of unused funds from their accounts. Such options do not have to be extended by an employer. If they are, the employer can only allow one of these options.
When the year ends or the grace period lapses, any funds that remain in the FSA are lost. This compels FSA holders to try to carefully plan out the amount of money that will go into the account and how they will spend it over the course of the year.
While you can’t use your FSA for insurance premiums, you can use it for copayments, coinsurance, deductibles, prescription medications, and dental and vision care, according to the IRS.
FSAs can also be used toward medical equipment and treatments such as:
Medicines prescribed by a doctor.
Psychological treatment.
Smoking cessation programs.
Blood sugar testing supplies.
Bandages.
Crutches.
Acupuncture.
Chiropractors.
Birth control.
Breast pumps.
Pregnancy tests.
Insulin.
You can’t use your FSA to pay for gym memberships, over-the-counter drugs without a prescription, vitamins or cosmetic procedures. In some examples, such as smoking cessation or diet counseling, you may need a doctor’s referral to verify you really need the covered treatment.
For more details on this topic, read IRS Publication 969.