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How to Save with a Flexible Spending Account (FSA)

Everything you need to know about FSA and Medical Coverage

Flexible Spending Account by Alicia Lam Taracido

An FSA or Flexible Spending Account is one of numerous government initiatives that are pre-taxed to benefit employees around the country. This account allows employees to deposit a certain amount of their salary for later use. An FSA can be used to pay for medical expenses, dependent care and other expenses. Covering medical costs are the most common usage of this account and they are often offered as part of numerous health plans.

Depending on your plan, your employer can contribute to the FSA as well. They are not obligated to contribute to it under any plan. The amount that is collected in your FSA can be used to pay for certain medical purposes for yourself or your spouse. It can also be used to support any dependents that have been declared on your tax forms. If they are on your health plan, you can use your FSA to pay for any adult children below the age of 26.

How FSA Works

In most FSA plans, the employee decides how much they want to set aside for the FSA from their paycheck. This amount is made available to them at the beginning of the plan year through the employer. The employee is given a debit card for the amount or can hand in the required receipts or letters for reimbursement. For example, if the FSA you opt for is worth $1200, at the beginning of the plan year (typically Jan 1 st ), $1200 is put into your debit card. The employee then pays off this amount on a monthly basis. In this case, the monthly contribution is $100.

The monthly contribution is taken directly from your paycheck and is not taxed. This enables you to save at least 30% of your healthcare spending. You can use the amount in your FSA throughout the year for various medical expenses, until the plan ends of December 31 st .

An FSA is beneficial as the amount you put into it is exempt from tax and it is the easiest way to get reimbursed for ongoing medical expenses. Since many working people have minor or major medical problems, an FSA account is worth it. However, the FSA isn’t an ongoing, carry over account meaning that the amount in the FSA is lost at the end of the year, if unused. The Affordable Care Act allows users to carry over up to $500 from one year to the next, while using an FSA. Thus, an FSA is suitable for individuals that have long term health issues.

Many employers are skeptical about providing FSAs as there is no guarantee that the employee will stick around for the whole year, meaning that their FSA will not be paid back. However, employers also benefit from FSAs as it cuts their annual taxes and counts as an employee benefit.

Medical coverage

An FSA can be used for most medical expenses, such as Medical Nutrition and Incontinence Aids ( Adult Diapers , Disposable Pull-ups , Bladder Control Pads ), however, there are a limited number of medical products that are reimbursed, these include:

Some products that are covered by the FSA require a doctor’s prescription. These are:

  • Allergy Medicine
  • Antacids
  • Acne and various other skin treatments
  • Aspirin
  • Fever and Allergy medications for children
  • Cough drops and sprays
  • Ear drops
  • Eye drops
  • Feminine personal care items
  • Laxatives
  • Nasal drops
  • Nicotine Patches and Gums
  • Pain relieving creams, pads and tablets
  • Sleep medications
  • Digestive issue medication
  • Diaper rash cream
  • Cold sore treatments

For prescription medications, reimbursement only applies if you get the medication from a pharmacy, drug store, non-healthcare merchant pharmacies like CWI Medical, or licensed online vendors. It is necessary to acquire the prescription before making the purchase for the reimbursement to be enabled.

There are many other treatments that are covered by the FSA. For employees that would need any of the listed materials above, an FSA can be a great way to save money. Most employees will face at least one or multiple problems that will require the above-mentioned materials, it is thus a good idea to get an FSA.

There is a maximum limit for annual deposits that is set at $2,600. This is set for both individuals and families. Depending on your employer’s plan, the limit might be changed. If you change jobs or retire, then there is a chance that the account will be forfeited. To accommodate employees that are covered by an FSA, employers may present a debit card that they can use for eligible purchases as and when needed. Alternately, employers will reimburse employees for medical expenses when they arise.

Other medical expenses

Medical FSAs are useful for various long term treatments that are not directly considered to be medical. These include AA meetings to help with addiction and the transportation required to attend the meetings. Acupuncture procedures that are proven to be medically necessary. Expenses related to the adoption of a dependent child that is in need of medical care. Reimbursement is provided even for medical expenses that are incurred before the final adoption goes through. However, the child has to be listed as a dependent on your tax forms before applying for reimbursement.

Material possessions like air conditioners, air filters, hand sanitizers , specific clothing items related to certain conditions and more are also covered, provided that the patient can provide a certified letter that the items are medically necessary. Cosmetic procedures, such as abdominoplasty, face lifts, breast augmentation and the likes are not covered under FSA.

Moreover, certain aspects like adult day care, after school care and agency fees could potentially be covered by the FSA, as long as certain conditions are met. Adult daycare expenses are covered only if the individual does not require day care for medical purposes and if the individual lives in the employee’s household for at least 8 hours a day. Elderly care is possible but long term 24/7 medical care is not eligible.

After-school care is applicable in cases where the dependent’s enrollment in care programs enables both spouses to work full-time jobs. However, after school programs that are related to education, such as tuition, do not qualify.

Ineligible expenses

While an FSA covers a vast array of medical requirements, it does not cover certain treatments that are home-based or otherwise, do not meet the criteria. These include:

  • Autopsies
  • Assisted Living
  • At-home drug tests
  • Non-medical mouth guards
  • Hair removal treatments
  • Hair transplant treatments
  • Health insurance premiums
  • Housekeepers
  • Pedicures
  • Paternity tests
  • Retainer fees for physicians
  • International medicines
  • Preschool programs
  • Tattoo removal
  • Tanning salons
  • Cosmetic dental procedures
  • Basic toiletries
  • Warranties
  • Basic baby care ( bottles, powders, oils)
  • Insect repellents

There are various other products and treatments that are not covered by the FSA, you can find a full list on various online sites.

Deciding on your annual contribution and signing up

Typically, FSAs are made available through the employer. Any employee can sign up for an FSA through their employer. As of 2016, FSAs have an annual limit of up to $2,550. Employees do not compulsorily have to contribute this amount, instead they can choose an annual contribution that is much lower. The amount that one decided to contribute are dependent on numerous factors. The amount for the contribution is set at the beginning of the year, during open enrollment. This is the only time when the amount can be adjusted.

For people starting their first job, that are offered the option of an FSA, serious thought is required before signing on. An FSA could be a great way to cut your medical costs but remember that it is only valid for a year and the money will go to waste if left unused. Employers have the option of either allowing you to carryover $500 to the next year or allow a grace period of 2 and a half months to further extend the usage period. However, this depends on the employer as they are not mandated to offer either of the above options.

Before signing off on any FSA plan, get thoroughly familiar with it. There is no one solution that is suitable for everyone considering an FSA – it is all dependent on your circumstances. Sometimes, an FSA can be more restrictive than the IRS, which is a definitive sign to look at other options. Since each company can offer its own terms for an FSA, it is important to analyze the plan.

 

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