Wednesday August 9th 2017
Whether you just started a new job or you’ve been working for your company for years, you have some decisions when it comes to the benefits. Your employer likely offers a lot more than just health insurance as part of a comprehensive benefits package. One of the most valuable, yet underutilized benefits available to employees is a flexible spending account (FSA).
The three main types of FSAs are health, limited purpose, and dependent care. Employees decide on an amount for the year, and that total will be divided by the number of paychecks for automatic payroll deduction. Health FSA funds are available on the first day of the plan year, while dependent care FSA funds accumulate as deductions are taken out of your paycheck.
Most FSAs include a debit card for easier use of the funds within the account. You can use the debit card at most doctor’s offices, pharmacies, and other qualified locations. If you pay for expenses out of pocket, simply submit the receipt for reimbursement and you’ll get the funds via check or direct deposit.
Any of your dependents on your health plan are eligible to use the funds within the FSA on qualified expenses.
FSAs have been around for a while, but there is still some confusion around the rules and contribution limits. These can also change year over year. In the past, FSAs had a “use it or lose it rule,” which dictated that any funds not used during the plan year would be lost. But a few years ago, the IRS approved two new options for FSA use. The first is a grace period, which allows FSA accountholders to use any remaining funds for expenses incurred during the first few months of the following plan year. The second option is a carryover, which allows an employee to carry over up to $500 of remaining funds in the FSA to use in the next plan year. An employer can only offer one of these, although neither is required, so check with your HR department before you decide how much to set aside.
An FSA is helpful for just about anyone, whether you have ongoing medical conditions or you’re pretty healthy. The important thing is planning ahead and deciding how much to set aside. Start by reviewing your financial statements from the previous plan year to get an idea of how much you spend on health and dependent care in a year. If you had surgery or another major medical procedure, make sure to factor that in when deciding on the total amount for the year. If you aren’t on a lot of medications or visit the doctor very often, keep your total low for the year.
When you allocate funds to an FSA, that amount of your paycheck isn’t subject to payroll taxes. This means that when you use the funds to pay for necessary expenses, you can save as much as 30%.
While you can’t spend FSA funds on insurance premiums, there is a long list of eligible items. These include copayments, coinsurance amounts, deductibles, prescription medications, dental care, vision care, medical equipment, and treatment.
If you have questions about FSAs, visit the Infinisource Benefit Services FSA Resource Center. It includes helpful guides, videos, and tutorials designed to help you better understand the benefits of an FSA as well as what expenses are covered under this account.
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