Budgeting, saving, and investing are essential pieces to our financial puzzle, but could you be missing out on important programs designed to help you save and be healthier? Employer-provided benefits such as the Flexible Spending Account (FSA) are a prime example of expense-saving programs that often go unused. Flexible Spending Accounts are one of the most valuable benefits provided in the workplace for medical and dependent care expenses. Because we understand the value of wellness, we want to answer some common questions about the FSA.
What is a Flexible Spending Account (FSA)?
A Flexible Spending Account is a tax-advantaged account, set up through your employer, that allows you to set aside a certain amount of your earnings to pay for qualified expenses. Contributions you make to your FSA are deducted from your check before taxes are calculated. The purpose of the FSA is to help cover out-of-pocket medical, dental, and vision expenses such as health insurance co-pays, uninsured treatments, or even over-the-counter drug purchases.
How does a Flexible Spending Account work?
At the beginning of the plan year (usually January 1st), your employer will ask how much you want to contribute for the year. Each month, the amount of money that you have pre-determined will be deducted from your paycheck and put into an account for your use during that same year. There is a limit of how much can be deposited into an FSA account, so check with your employer on the limit.
You can access the funds in your FSA account two ways:
- You may pay out-of-pocket then submit a copy of the Explanation of Benefits (EOB) or the provider’s invoice and proof of payment to the plan administrator. A reimbursement check will be issued to you as long as the expenses are approved.
- Some employers offer an FSA debit card that can be used at the point of purchase. Please note that unlike other debit cards, FSA debit cards are not accepted at every merchant that accepts Visa or MasterCard. The merchant must be coded as an approved business. Ex: You visit a spa to make an approved purchase for prescription cream for Rosacea but the FSA debit card doesn’t process. Even though it’s an approved purchase, the card doesn’t recognize the business as a medical facility. In the case that your card is declined at the point of purchase, you must pay out-of-pocket and submit the appropriate paperwork for reimbursement as described previously.
What are the benefits of a Flexible Spending Account?
An FSA saves you money by reducing your income taxes and your out-of-pocket medical expenses. The contributions you make to a Flexible Spending Account are deducted from your pay before your Federal, State, or Social Security Taxes are calculated and are never reported to the IRS. You decrease your taxable income and increase your spendable income. A Flexible Spending Account, when utilized to its fullest potential, can save you hundreds or even thousands of dollars per year. You may be able to pay for lab fees using your Flexible Spending Account.
What expenses are eligible for reimbursement?
Any expense that is considered a deductible medical expense by the IRS and is not reimbursed through your insurance can be reimbursed through the Flexible Spending Account. Here are a few examples:
- Laboratory fees
- Acupuncture treatments
- Fees in excess of amounts allowed by your insurance
- Birth Control Pills
- Co-payments on covered expenses
- Meals, transportation and lodging
- Nutritional supplements, vitamins, herbal supplements, etc. can only be included if they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician, according to the IRS website.
A complete list of eligible medical expenses and explanations can be found on the IRS website.
What is the difference between a Flexible Spending Account (FSA) and a Health Savings Account (HSA)?
The most important commonality between the two accounts is that you are allowed to set aside the money before you pay income taxes on it. The FSA is a spending account, which indicates that you are expected to spend the money that you have set aside within that year. The HSA is a savings account, meaning, you may save that money until you need it, even if you don’t need it until many years later.
Want more information? get in touch with us.