A Guide Through Flexible Spending Account (FSA)
A Flexible Spending Account (FSA) is a special type of account that can help you pay for qualified expenses and save on your taxable income. A Flexible Spending Account (FSA) can help you pay for copayments, deductibles, certain drugs, and eligible health care costs.
A few things to know about FSA
- Your employer can offer you FSA account, and they own it.
- As of 2022, you can contribute a maximum of $2,850 in an FSA in a year. If you are married, your spouse can put the same amount in an FSA with their employer.
- You can use FSA funds for specific medical and dental expenses for you, your spouse, and your dependents.
- Deductibles and copayments can be made with FSA funds, but not insurance premiums.
- You can get prescription medicines and over-the-counter medicines with a prescription using FSA funds. No prescription is required for reimbursements for insulin.
- Funds from an FSA also cover medical equipment (like crutches), supplies (bandages), and diagnostic devices (like blood sugar test kits).
- FSA funds come with a limit of one year. Generally, you should use the money within the plan year. However, employers can provide you with a “grace period” of 2.5 months into the next year to use the remaining funds in your account.
- You can either go with the above option or can choose to carry over up to $570 from the previous year to the following year.
- Apart from you and your employer, no one can put money in the FSA.
- FSAs are commonly termed “use it or lose it” accounts, but with a silver lining.
Why is it flexible?
FSAs offer employers several options while they choose which one to offer for their employees. These are:
- Health care FSA: Commonly known as medical FSA, you can use these types of accounts to pay for qualified healthcare expenses like medical, pharmacy, dental, and vision.
- Dependent care FSA: As the name suggests, you can use money from such accounts to pay for qualified expenses for your dependents. However, children under 13 and adults, who cannot mentally or physically take care of themselves, are defined as dependents in such cases.
- Limited purpose FSA: This account helps you pay for qualified dental and vision expenses. Besides, having both Health care FSA and Limited purpose FSA accounts can help you save a bit more on taxes.
How to enroll in an FSA
Before you enroll for an FSA, keep the following things in mind:
- Calculate an approximate expense for the upcoming year.
- Get in touch with your employer to know if they contribute any money to the FSA.
- Calculate how much you want to put in an FSA.
Once you are through the above list, sign up for an FSA during open enrollment.
Now, the silver lining we were talking about. FSA is not entirely a “use it or lose it” account. The leftover funds from one year go back to your employer, or you can choose to:
- Pay for qualified expenses using the leftover funds for two and a half months into the new year.
- *Carryover up to $500 from one year to the next.
How to use FSA funds?
Using an FSA account is easy. You need to submit a claim to the FSA through your employer along with proof of medical expenses. You also need to provide a statement that none of the expenses has been covered by your health plan. Next, you will receive your reimbursement. Now, an FSA account comes with a debit card, making it easier to use than before.
For healthcare and limited purpose FSA, the entire amount is available from the first day. For example, if your employer puts $300 and you decide to contribute $400 in such accounts, you can access $700 from the first day. You can pay your part of $400 over the year.
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