Are you taking advantage of all of the healthcare benefits offered by your employer? Probably not right. Well don’t worry, no judgement here because I still have to look into how I can get reimbursed for going to the gym regularly. But here’s the thing, although more than 40 million Americans use flexible spending accounts, it’s one of the healthcare benefits that a lot of people either overlook or know nothing about. To get you up to speed, here’s what you need to know and how to get started.
What is a flexible spending account?
An FSA or flexible spending account is a healthcare savings account that helps you put money aside for out-of-pocket healthcare expenses like copays and prescriptions. Think of it as a savings account that can only be used for certain qualifying medical expenses. Similar to retirement accounts, FSA contributions are tax-free so these funds are taken out of your paycheck before income tax and social security tax.
HSAs vs. FSAs
An FSA should not be confused with an HSA or health savings account – I know, so many similar acronymns.
What’s the major difference?
While HSAs can only be used if you have a high deductible health insurance plan, an FSA can be used with all types of healthcare plans. While there’s a lot more that we can talk about here, since this is a quick guide, let’s keep it moving.
How does an FSA work?
Flexible spending accounts are offered by your employer as part of your benefits package. If you’re not sure if your employer offers this benefit, check with your Human Resources department. If you are self-employed, you cannot open one.
Signing up for an account is easy but enrollment is only available once a year during open enrollment, when you pick your health insurance plan. You cannot adjust your contributions throughout the year and if you change employers, you forfeit the account.
Next figure out how much money you want to allocate. As of 2019, you can contribute between $240 and $2,700 in pre-tax dollars annually. Remember you can use this money for you, your spouse and dependents so factor that into your estimates. Based on the amount you choose, your employer will set money aside for you in your account every paycheck.
Once you’re all set up, you’ll either get a debit card to pay for qualifying expenses or you’ll have to submit receipts for reimbursement. Even if you opt for a debit card, I recommend keeping reciepts just in case the IRS comes back with questions.
Throughout the year, use your account to pay for a variety of healthcare expenses but remember that it will not cover everything.
Here’s a list of some FSA eligible expenses:
- Copays and deductibles
- Dental work and cleaning
- Ambulance and emergency health services
- Birth control
- Pregnancy tests
- Chiropractic office visits
- Flu shots
- Doula or birthing coach
- Eye exams, glasses, and contact lenses
- Breast pumps and accessories
- Medical equipment
Ineligible expenses include cosmetic surgeries, insurance premiums, some over-the-counter medications, and gym memberships. For the full list of eligible and ineligible medical expenses, I recommend checking out the IRS website.
Use it or lose it
Lastly, there’s a deadline to spend your money. At the end of the calendar year (December 31st), you can only carry over $500 into the next year. Anything in excess of $500 will be forfeited so try your best to realistically estimate how much you’re going to spend every year. Some employers offer a two-month extension but refer to your Human Resources department.
How I manage my account?
Instead of using my emergency fund to pay for out-of-pocket medical expenses, I use my FSA to pay for copays (medical and dental), chiropractor visits, and new prescription glasses. I recently bought two new stylish pairs of glasses from an affordable eyewear company like Eye Buy Direct and I didn’t have to bat an eye because I already had money earmarked for this expense. #financiallysavvytraveler
So is a flexible spending account worth it?
Yes, I think so because not only does the tax benefit help you save money on your taxes but since it covers a variety of things, you’ll always have a stash to pull from when you need to pay for medical expenses. While there are a lot of things to consider when using an FSA, don’t let that stop you from taking advantage of this benefit which can save you hundreds of dollars.