What is a Flexible Spending Account?

What is a Flexible Spending Account?

A Flexible Spending Account (FSA), sometimes also referred to as a Flex Spending Account, a Flex Savings Account, or a Flexible Spending Arrangement, is an employer-sponsored benefit plan addon that lets you set aside pretax money from your paycheck to spend on health care expenses not covered by your insurance policy. Since the money that goes into an FSA is pretax, you can save as much as 40% on the qualified out-of-pocket health expenses for which you use your FSA dollars.

Why have an FSA?

Over the past decade, the steep rise of insurance premiums, co­pays and deductibles have increased the burden of
health care costs on employees and their families. An FSA is an easy way help reduce the burden of those
out-­of-­ pocket expenses, cover appointments and procedures not covered by your insurance plan, as well as save
money on everyday necessities such as over­-the­-counter medications and medical supplies. All tax-­free!

What expenses are FSA eligible?

FSAs can be used to help cover a large portion of your out-­of­-pocket health expenses from your insurance plan,
including deductibles, co­insurance and co­payments; though insurance premiums are not eligible. Out­-of­-pocket
expenses for doctors’ office visits, hospitalization and surgery, as well as medically necessary counseling and therapy
are all FSA eligible. Most dental care and eye care services are also eligible. See our FSA Eligibility List for a full
list of FSA eligible procedures and services.

Thousands of non­-medicinal over­-the-counter (OTC) medical supplies and everyday health care items are FSA
eligible. Our site, FSAstore.com, makes it easy to figure out exactly which are covered, and pay with an FSA card, so
there is no paperwork required! We carry the largest selection of FSA eligible items online, in useful categories such
as baby care, diabetes care, skin care, and first aid. Many prescription and OTC medications are also eligible;
however, OTC medications now also require a doctor’s prescription in order to qualify for reimbursement. 

In addition to a Health Care FSA, you can also elect into a Dependent Care FSA, which covers eligible expenses
including medical care, schooling, and daycare for any dependents claimed on your federal income tax return.
Dependents include children under 13 years old, mentally or physically disabled dependents, and elderly dependents
living with you.

Why have an FSA?

You choose how much to contribute to your FSA based on your estimated health spending for the next year. That amount will then be deducted from your paychecks evenly throughout the year. For example, if you elect to contribute $2000, and receive paychecks every two weeks, about $83 will be deducted from your paycheck each pay period to fund your FSA. However, you will have access to the full amount you elected to contribute immediately, even if the amount you intend to spend has not yet been deducted from your paycheck.
During your company’s open enrollment period, you’ll need to elect an FSA and determine how much to contribute annually. It is important to carefully decide how much you intend to contribute, as you can only spend as you much you elected to contribute for the year or what remains of your available account balance.

Starting January 1, 2013, the amount you were allowed to contribute to your Health Care FSA was limited to $2,500, and that was set to be adjusted for inflation since, the current limit is now $2,550 per FSA account in 2016 and $2,600 per FSA account for 2017. If you and your spouse both have access to an FSA through your respective employers, this means you could each have an FSA and elect the current maximum for a household FSA total of $5,100 in 2016 and $5,200 in 2017. The limit for a Dependent Care FSA is $5,000 per household, or $2,500 if married, but filing separately. Use our handy FSA Calculator for help estimating how much to contribute and what your annual tax savings will be.

Are there deadlines to keep in mind?

It’s also important to keep in mind plan-year deadlines and possible deadline extensions for your FSA. FSA plans can be structured differently and can have a grace period, a carryover option, or neither. 
Some FSAs provide for a grace period following the end of the plan year, which gives you an additional 2 and a half months following the last day of the plan year to incur new eligible expenses and spend your remaining FSA money. Most FSAs offer a run-out period, which gives you typically 3 months following the end of your plan year to get reimbursed for expenses that were incurred during the prior plan year (new expenses are not allowed). Additionally, new regulations issued by the Treasury and IRS indicate that employers may allow up to $500 in an FSA to carryover to the following year, but not all FSAs offer this option. If you don’t use your money or if your FSA has a carryover and more than $500 remains unspent, it will be forfeited to your employer. For your specific FSA provisions and to better understand how your plan is structured, its best to check with your FSA administrator.You can spend FSA funds with an FSA debit card or pay by other means and file for reimbursement from your benefits provider. The FSA debit card is much like a normal credit card, but is only for use on qualified health care products and services.

How do I get one?

Your employer or benefits provider must offer an FSA in order for you to take advantage of the savings it offers. If they don’t offer one, ask them to add an FSA plan. If they do offer one, you must elect to participate, and decide how much to contribute during the open enrollment period at the beginning of each plan year. If you already have an FSA, the open enrollment period is the only time you can alter the amount you choose to contribute. Though, if you experience a “qualifying event” (for example having a baby), you may be able to change the amount mid-year.


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