What Are FSA Funds?

FSA funds are a great way to save tax dollars on certain expenses. They’re also a good way to budget and keep track of your health care costs.

But like any savings account, they’re subject to a use-it-or-lose-it rule. Any money left unspent by the end of a plan year is forfeited to your employer.

Tax-Free Money

A health flexible spending account, or FSA, allows you to save money on medical costs by contributing pretax dollars. Typically, you designate how much you want to contribute to your FSA, and your employer deducts amounts from your paychecks throughout the year.

You can also set up a dependent care FSA to pay for daycare expenses, like preschool and after-school programs. The money you put into a dependent care FSA can be used on yourself, your spouse and any tax dependents.

The funds you deposit into your FSA are usually exempt from federal, state and local taxes, so your savings can be quite substantial. But before you enroll in a health FSA, you should take time to evaluate your eligible expenses for the upcoming plan year and decide how much to contribute.

Once you’ve determined how much you should contribute, make sure your contribution amount is accurate. Otherwise, you could lose your contribution at the end of the plan year. Many plans offer a “use-it-or-lose-it” rule, so be sure to use your contribution on anticipated expenses during the year.

Keep in mind that any unused funds you have at the end of the plan year can roll over to the following plan year, or your employer may choose to allow you a 2.5-month grace period before the money is forfeited.

If you don’t spend your FSA funds on medical or dependent care expenses by the end of the plan year, you will most likely lose your contribution. However, some employers will allow you to carry over up to $570 of unused funds from one plan year to the next.

In addition, some employers may offer a refundable contribution option, which means that even if you don’t use all your FSA funds for the year, you can still get a refund of some or all of them at tax time. This is especially useful if your tax bracket is very high.

Before you enroll in an FSA, you should consider your medical, dental and vision expenses for the upcoming plan year. The IRS has a number of resources to help you determine how much to contribute, including an annual expense estimator worksheet. You should also consult a tax professional to make sure that you’re not putting yourself in a potentially costly tax hole.

Flexible Spending Expenses

Flexible spending accounts, or FSAs, are a tax-advantaged benefit that lets you set aside pretax dollars for health care costs. The money is deducted from your paycheck, then you can use it to pay for eligible expenses like copayments, deductibles, dental and vision costs, prescriptions and over-the-counter medications.

If you’re thinking about using an FSA, it’s a good idea to forecast your upcoming medical and dependent care expenses for the year. This way, you can estimate how much to contribute each paycheck and get an idea of how much you’ll be able to save on your taxable income.

A healthcare flexible spending account is a type of FSA that allows you to use pre-tax dollars to cover eligible medical, dental and vision care expenses for yourself and your family. These funds are available on day one and are not tied to a specific health plan.

Some employers offer an option for you to roll over unused flexible spending accounts (FSAs) from one plan year to the next. This is helpful if you think you’ll spend more than the annual limit, but you don’t want to lose any of the funds.

In addition, if you’re called to active military duty for more than 180 days, an exception allows you to distribute a portion of your FSA. This is not a guaranteed amount, so you’ll need to check with your employer for more details.

Another rule is that you must have used the FSA funds by March 15 of the following year, or your account will expire. Some employers also offer a grace period of up to 2.5 months into the following year, which will allow you to use your FSA funds.

Despite the limitations, an FSA can be a helpful tool when you need to pay for a large expense. Some companies offer a line of credit, which means you can borrow against your FSA for one year to cover a large medical expense, then pay it back.

New legislation, such as the CARES Act of 2020, has expanded FSA eligibility and given Americans more ways to maximize their FSA benefits. These changes include allowing the purchase of over-the-counter medications without a prescription and covering menstrual products that weren’t previously covered.

Reimbursement

If you’re looking to reduce your out-of-pocket healthcare costs, consider enrolling in a Flexible Spending Account (FSA). These accounts allow you to set money aside pre-tax, which reduces your taxable income and can save you a significant amount of money.

FSA funds can be used for many different healthcare expenses, including medical, dental and vision services. The key is to find out which items are eligible for reimbursement from your FSA.

You must submit a reimbursement claim form and other required documentation to the spending account administrator, Benefit Express/WEX, in order to be reimbursed from your FSA. In addition to submitting paper claims, you can also use your WEX health FSA debit card to pay for eligible health care expenses.

The most common types of deductibles for FSAs include copays, annual deductibles, out-of-pocket maximums and deductible exceptions. However, a few other deductions may also be available to you, depending on your plan.

Typically, your plan will provide a list of the medical, dental and vision services that are covered under the FSA. If you have questions about what is eligible, consult your HR department or the IRS for more information.

For medical FSAs, only expenses incurred during the plan year are eligible for reimbursement. The IRS defines a medical expense as any medically related item or service that is billed by a physician, hospital or other healthcare provider.

Some examples of these medical expenses include: saline nasal sprays, gas and colic relief supplies, prescription medications, eyeglasses, contact lenses, hearing aids and dental care. Additionally, certain equipment, supplies and other items can be reimbursable under an FSA, such as a guide dog or other service animal for people with a diagnosed visual or hearing disability.

In addition to these medical costs, you can also claim transportation costs to and from medical appointments as well as the cost of regular visits to a mentally ill dependent. For example, if you have to take your child to their doctor’s office or other medical appointment, you can be reimbursed for the cost of a bus, taxi, train or airplane ticket.

Taxes

A flexible spending account (FSA) allows you to set aside some of your salary into an account that can be used tax-free for medical and dependent care expenses. It’s a great way to save on the taxes that you might otherwise owe, but it also provides a safety net for unexpected expenses.

FSAs are not only a great way to save on your taxes, they can also give you the buying power to cover over-the-counter items that are usually only available at a doctor’s office or at your health insurance plan’s pharmacy. Many over-the-counter medications, such as antibiotics, vitamins, and herbs, are eligible for purchase with your FSA funds.

There are a few things to keep in mind before deciding if an FSA is right for you. First, be sure that you’re eligible to contribute to the FSA for the year. This is different for everyone, so make sure you talk to your employer and check the rules before you sign up.

Another thing to consider is how much money you expect to spend on healthcare in the coming year. If you don’t expect to have a lot of healthcare expenses, it’s probably not worth contributing the full amount.

However, if you think that your healthcare needs are somewhat predictable and you can afford to spend the money that you put into an FSA, it could be worth it.

As long as you’re careful, it’s a great way to get some buying power for over-the-counter items that can help keep your costs down. In most cases, you can use your FSA funds to pay for prescriptions and doctor’s office copays as well as health insurance deductibles and other qualified expenses.

If you’re unsure of whether an FSA is right for you, talk to a financial planner or your employer. They can help you make the best decision for your situation and can provide the advice you need to maximize your benefits.

While the savings from an FSA can be significant, it’s important to remember that you’ll need to use your FSA funds within the year. If you don’t, your FSA will lose its tax-free status and any unspent funds won’t roll over to the next year.