Health Care Flexible Spending Account (FSA)
A Flexible Spending Account (FSA), also called a "flex plan" or reimbursement account, is an employer sponsored benefit qualified under Code Section 125 of the IRS that allows an employee to pay for eligible medical expenses on a pre-tax basis.
If an employee expects to incur medical expenses that will not be reimbursed by regular health insurance, an FSA is a good option.
How Does a Flexible Spending Account Benefit Me?
An FSA saves you money by reducing your income taxes. The contributions you make to a Flexible Spending Account are deducted from your pay BEFORE your Federal, State, or Social Security Taxes are calculated and are not reported to the IRS. The end result is that you DECREASE your taxable income & increase your spendable income. A possible annual savings of hundreds of dollars.
*** Flexible Spending Accounts are not tied to a certain kind of plan; the FSA can cover out-of-pocket costs
associated with any kind of health plan for your immediate household & eligible dependents***
How Do Flexible Spending Accounts Work?
At the beginning of the plan year (which starts on January 1st of each year), your employer will allow you to choose during your Open Enrollment the annual amount of money you want to contribute for the coming year. (There are certain limits/maximum contribution per year is $5,000)*
Employees have only one opportunity per year to enroll, unless you have a qualified "family status change," such as marriage, birth, divorce, or loss of a spouse’s insurance coverage.
The amount you designate for the year is taken out of your paycheck in equal pre-tax installments each pay period & placed in a special account for you by your employer.
As you incur qualified medical expenses that are not fully covered by your health insurance, you will have access to a provided debit card that is preset with your elected annual amount that was chosen.
***Contact your Flexible Spending Account provider for further details & explanations
on use of the debit card. Certain restrictions apply***
What Expenses Are Eligible for Reimbursement?
Any expense that is considered a deductible medical expense by the Internal Revenue Service and is not reimbursed through your insurance can be reimbursed through the Flexible Spending Account. Examples include: Eye Exams/Contact lenses/ eyeglasses (not reimbursed by insurance).
Out of Pocket fees for hospital services, qualified long-term care services, accident & health, nursing services, laboratory fees, certain prescription medicines & drugs, & insulin.
Inpatient treatment at a center for alcohol or drug addiction.
Smoking-cessation programs & prescribed drugs to help nicotine withdrawal.
Hearing aids, crutches, wheelchairs, & guide dogs for the blind or deaf.
"Non-elective" cosmetic surgery.
Deductibles/ Co-payments on covered expenses.
Dental Care/Braces/False Teeth.
Certain over the counter medications/ medical equipment.
Health care expenses not covered under any other plan.
***IRS Publication 502, Medical & Dental Expenses, lists eligible expenses*** 2
How Do I Decide How Much to Contribute to My Flexible Spending Account?
It is important to give some careful thought to calculating how much money to contribute for the year. If you put more money in the account than what you use, there is a "use it or lose it" clause. You will lose any unused funds.
You have 3 months after the end of the calendar year to submit claims for eligible expenses incurred during the previous calendar year. Any money left in your account after the 3 months"will be forfeited".
To determine how much to contribute, make a list of the expected out-of-pocket medical expenses for you & your dependents for the next year. For example, if you always exceed your deductible, include the deductible amount in your calculation. Be conservative so that you do not risk forfeiting any unused funds.
Note: The money you have decided to set aside is immediately available to you at the beginning of the plan year.
Will pre-taxing have an impact on Social Security benefits?
Reduction in your taxable pay may lead to a reduction in your Social Security benefits; however, for most employees, the reduction in Social Security benefits is insignificant compared to the value of paying lower taxes today.
NOTE: THIS DOCUMENT IS FOR INFORMATION PURPOSES ONLY. ALWAYS CONSULT THE IRS OR YOUR TAX ADVISER AS TO APPLICATION OF THIS INFORMATION TO YOUR PERSONAL CIRCUMSTANCES.
What is a Flexible Spending Account?