If you have a health plan through a job, you can use a Flexible Spending Account (FSA) to pay for co-payments, deductibles, some drugs, and some other health care costs. Using an FSA can reduce your taxes.
A Flexible Spending Account (FSA) is a health care expense account set up by your employer. A Flexible Spending Account is generally funded using pre-tax money which you have earned, but your employer may contribute as well. You don’t pay taxes on this money. This means you’ll save an amount equal to the taxes you would have paid on the money you set aside.
The money put into a Flexible Spending Account must be used in a year or it will be lost. You should estimate what your expenses may be for healthcare, including dental, vision and prescription medications for the year. Check with your employer if they have established a grace period.
Flexible Spending Account Deductions
When you are filling out your FSA deductions during open enrollment, a life change event or at the start of a new job, keep in mind the frequency of withdrawals. Withdrawals are made per paycheck. If you get paid bi-monthly and you selected $20 as the amount to withdraw, $40 may be withdrawn from your paycheck every month. If you were planning on accumulating $200 for the year, for a new pair of glasses, you would have contributed $480 to your FSA. That’s $280 more than you were planning on spending!
The full contribution amount may be used immediately.
Money in this account may be used for copays, deductibles, and certain medical expenses not covered by insurance such as laser eye surgery, no-smoking and alcohol treatment programs and chiropractic care. Items not cover by FSA are insurance premium payments, cosmetic surgery, hair transplants, teeth whitening, fitness equipment and exercise programs.
Please check with your employer for a detailed list of eligible and ineligible items, contribution limits and full details of the program they signed up for.