Flexible Spending Account (FSA)
What Is a Flexible Spending Account?
Flexible spending accounts are often referred to as FSAs, and they are accounts that you or an employer can put money into and then use the funds to pay for medical expenses. These accounts can allow you to earmark funds that are used exclusively to pay for costs related to healthcare.
The purpose of a flexible spending account is to make it easier to pay for routine and unexpected medical expenses. It can be challenging to budget for medical necessities, especially for a person who is in good health. With an FSA, you can easily set aside a specific portion of your income to ensure that you're always able to pay for medical necessities.
Flexible Spending Account Monetary Limits
There is a limit to how much an FSA can be funded each year. As of 2017, the annual limit is $2,600. If you're married, your spouse is also allowed to have their own account with up to $2,600 of funding.
It's important that you have a plan for spending the money in your FSA because the funds do not roll over into the next year. Some FSAs can be set up so that you have an additional 85 days to use your funds, or up to $500 to roll over to the next year. However, there's no requirement for FSAs to be set up this way, so you may lose any funds that aren't spent by the end of the year.
Flexible Spending Account Eligible Expenses
When you have an FSA, you have access to the account via checks or a special debit card. Currently, there are thousands of eligible expenses, including baby supplies, blood pressure monitors, pregnancy tests, over-the-counter medicines, thermometers, wheelchairs and more. Check with your FSA for a comprehensive list of eligible medical expenses.
Do Flexible Spending Accounts Pay for Any Medical Expenses?
The funds can be used for a variety of out-of-pocket medical expenses, such as deductibles, copays and prescription medications. Funds from FSAs can also be used to cover medical costs that aren't paid for by an insurance company, but you cannot use FSA funds to pay your health insurance premiums.
What Do Flexible Spending Accounts Cover?
There are 3 types of FSAs:
1) Standard FSAs-
With a Standard FSA, you can pay for most medical expenses. The Standard FSA is typically used in combination with your health insurance to pay for out-of-pocket costs.
2) Limited Expense Health Care FSAs -
With Limited Expense Health Care FSAs, you can earmark funds for vision and dental expenses, and you can save up to 30% on the cost of out-of-pocket expenses for these types of care.
3) Dependent Care FSAs -
With a Dependent Care FSA, you can deposit up to $5,000 yearly, and use funds to pay for eligible dependent care services. These services can include school programs, preschool and babysitting expenses for children under the age of 13, and in some cases elderly care.
Benefits of a Flexible Spending Account
With an FSA, you can easily withdraw funds to pay for eligible medical expenses even if you haven't yet deposited funds. In addition, you can subtract your employer's contributions from your gross income.
Do You Pay Taxes on Flexible Spending Accounts?
One of the reasons that so many people have started using FSAs as a method of funding their healthcare costs is that the money put into these accounts isn't taxed. This allows individuals to reduce their taxable income, and many employers will also contribute to these accounts which adds to the total funds available for medical expenses.
Are Employers Required to Contribute to Your Flexible Spending Account?
Employers are not required to contribute to your FSA. This account is separate from your primary health insurance plan and therefore does not carry the same legal obligations. However, many employers do make contributions as an employment benefit.