FSA, also known as Flexible Spending Account, can be used to pay for copayments, deductibles, prescription drugs, and other healthcare expenses. Setting up an FSA can reduce your payroll taxes, but in most instances, you need to get one through your job and meet some minimum requirements.
What Is An FSA
A Flexible Spending Account is also called a Flexible Spending Arrangement or FSA. In any case, they’re the same. It’s an account you put money into to pay for certain out-of-pocket healthcare costs.
You don’t pay taxes on this money you put in, which means you’ll save a couple bucks on taxes. Employers may make contributions to your FSA, but they aren’t required by law to do so.
An FSA works similar to a 401(K). Except instead of saving for your retirement, you’re saving for your healthcare expenses.
How Do FSA Accounts Work
You can use your FSA funds to pay for certain medical and dental expenses for you, your spouse, or your dependents. FSAs can pay for things like deductibles and copayments, but not insurance premiums.
You can also spend funds on prescription medications as well as over-the-counter medications with a doctor’s prescription. FSAs can also be used to cover the costs of medical equipment like crutches, bandages, diagnostic devices, and a host of other medical and dental expenses.
You’re allowed to contribute up to $2,650 per year per employer. So, if you’re married, your spouse can also put in 2650 with their employer. And if you have more than one job, you can contribute an additional $2,650 per job.
If your employer contributes, this limit goes higher.
But there’s a catch. Any money left in your FSA at the end of the year is gone. It’s essential to plan carefully and not put more money into your account than you think you’ll spend within the year.
Flexible Spending Account Grace Period, & Cary Over
Some employers offer a grace period for your FSA. Again, this isn’t typically how an FSA works. But your employer may offer one of two options:
- They can provide you with a grace period of up to two and half extra months to use the money in your FSA
- They can offer a carryover of up to $500 per year to use in the following year
However, it’s not required for any employer to offer any grace period. However, according to IRS laws, they cannot legally offer you both options.
What If I Don’t Use All The Money In My FSA
if your employer doesn’t offer you a grace period or rollover, the money left in your account at the end of the year is gone. The funds go to your employer. They can then split the money among employees in the FSA plan or use it to offset the cost of administering the benefits.
Under no circumstances – legally – can your boss give you back your money directly. This rule comes from the IRS.
If you have any money left towards the end of the year, you’ll need to figure out when and how to spend it. But the good news is that there are tons of ways to spend it while it’s still yours.
What Can I Pay For With An FSA?
- Any traveling expenses for medical care
- Acupuncture treatments
- Chiropractor visits
- Mental health and drug abuse counseling
- Birth control or abortions
- Artificial teeth or limbs
- Qualified service animals – including food and grooming costs
- Expenses for your spouse, children, or any other qualifying dependent
- Allergy medications – either prescription or over-the-counter
- Ambulance transport
- Aspirin and other over-the-counter pain relievers
- Blood pressure monitors
- Breast pumps
- Breastfeeding classes
- Births classes
- Contact lenses
- DNA test
- Eye exams
- Fertility monitors and treatments
- First aid kits
- Flu shots
- Hearing aids and batteries
- Laser eye surgery
- Mental health counseling and any relating travel expenses
- Physical therapy
- Pregnancy tests
- Smoking cessation programs
- Sunscreen (SPF of 15 or higher)
- Coinsurance payments
And this is just a partial list. You can view the full list of qualifying expenses here if those aren’t enough for you.
How To Get The Most Out Of Your Flexible Spending Arrangement
While it may be tempting to contribute the maximum amount here FSA, I – as will most people – would caution you against it. While you may want to set up an emergency account in case of, well, an emergency.
You might not need as much as you think. Not in your FSA account, that is.
If you find yourself in the position where you put too much in your account, you can:
- Stock up your medicine cabinet
- Get some procedures done that you’ve been putting off
- Visit an acupuncture therapist or chiropractor
- Get your eyes and your teeth checked out
- Use the money for pregnancy and family planning
- Make or bulk up a first aid and medicine cabinet
- Take care of your mental health, because we all really should do this more anyway, and we know it
FSA vs HSA
If you don’t like the idea of your money vanishing into thin air, you might be more comfortable with a Health Savings Account, also known as an HSA. You own all the money in your HSA, and this allows your contributions to rollover.
By contrast, FSAs are far less flexible and owned by the employer.
This lack of ownership means if you left your job, the funds in your FSA are forfeited. But in the same situation, your funds in your HSA are yours and rollover into another HSA account.
If you still have health insurance-related questions, you can check out some of our other articles on the topic;
- How Long After Leaving a Job Does Your Health Insurance Become Void?
- What is COINSURANCE?
- What is COINSURANCE REQUIREMENT?
- How Much Should General Health Insurance Cost for an 18-Year-Old Couple?
- How Much Is a Visit to the Dermatologist without Health Insurance?