These days, every dollar counts, and many people either do not take advantage of or do not understand the massive benefits a Flexible Savings Account (FSA) can provide. While FSA is a government program, employers are not required to offer it to employees. If your employer is one of many who do, keep reading, even if you think you have all bases covered, because you may just learn something new.
And if your employer doesn’t currently offer FSA, you can share this post with your Human Resources (HR) department, and perhaps the employer will consider offering FSA in the future. It is a quick and easy read and a win-win for all!
How does the program work?
You will decide the total amount of money you want to save within the account in a given plan year. Note, your plan year may or may not be the same as the calendar year, so check with your HR department to be sure.
Your desired total annual amount will be divided by the number of pay periods within the plan year. Thereafter, equal deductions will be automatically made each pay period, and those funds will be automatically deposited into your FSA account.
For example, if you want to allocate $1,200 annually, and you are paid monthly, $100 will be automatically withheld from your gross pay each month and automatically deposited into your FSA account.
How much can I save each plan year?
The current maximum is $2,700 per plan year, up from $2,650 in 2018, and the current minimum is $100 per plan year. Often, even your dependents’ qualified expenses can be covered.
Why do I want an FSA account when it is just my own money?
Tax benefits! Your taxable income is reduced by the amount of FSA you earmark, and that includes FICA, which can provide an otherwise untapped tax benefit. If you have any questions, be sure to consult with your accountant in advance.
Is FSA used only for medical bills?
No. The program has a myriad of eligible expenses, including not just services, but also countless products.
Are prescriptions the only products covered under FSA?
Thankfully, no. However, this is where it can be confusing, so bear with us here, as this is as per IRS regulations, and not our rules.
Many Over The Counter (OTC) products and medications do require you to have a prescription in order to be eligible for purchase with FSA funds, or, if you pay out of pocket, for you to be reimbursed with FSA funds.
For example, ibuprofen is eligible to be purchased with FSA funds, and OTC strength wouldn’t typically require a prescription. However, if you plan to use FSA funds to pay for it, you must have a prescription. But don’t let that scare you. Medical professionals are familiar with FSA and understand why you would be asking for a prescription for something that wouldn’t otherwise require one. Check with your doctor or pharmacist in advance if you have any questions or concerns about specific OTC products.
Do all FSA products need to be medications?
The great news here is no, they do not. There are so many items most people would never imagine would be eligible for FSA funding. FSA eligible items that may surprise you include products such as sunscreen, eye drops, and even some baby monitors!
What happens if I still have money in my account when the plan year is ending?
In most cases, you need to use it or you will lose* it.
Since there are several types of accounts for health and wellness expenditures, always check with your employer before making any purchase intended to be covered through your account. You can also learn more about the program on the IRS website. Until next time, be well!
*Some exceptions apply, but check in advance with your accountant to be safe.