Will a Healthcare Flexible Spending Account Benefit You?
~ By Herb White, MBA, CFP ~
What is a healthcare flexible spending account? And, if you put money into it, will you still have money for your healthcare costs as they arise throughout the year?
An FSA is an elective benefit of many U.S. employers. The most common account provides financial reimbursement for your qualifying medical and dental expenses that are not covered by your company’s health insurance.
Other FSAs can be established to pay for certain expenses to care for dependents while you are working; such as child care for children under thirteen or physically or mentally incapable of self-care, and adult day care for seniors who live with you. Some plans reimburse transit expenses.
Who is eligible for an FSA? You work at a job, enroll through your employer, and contribute through payroll deductions; typically, in conjunction with your company’s medical plan. (An HSA is a health savings account for individuals, such as those who are self-employed.)
Benefit. Your entire FSA contribution for the plan year is available to you at the start of the plan. If for some reason, you are not able to return to work, you do not have to repay the amount reimbursed to you out of the plan.
What are qualifying expenses? Eligible expenses include most out-of-pocket costs not fully covered by your company health plan, such as co-payments, deductibles, vision care, prescriptions, over-the-counter medicines, tests, and medical supplies. Generally, allowable items are the same as those that qualify for the federal medical tax deduction.
An important fact is that expenses paid out of your FSA cannot be used as a tax deduction on the Schedule A of your federal tax return.
How much can you put into your FSA? You designate how much you want to contribute for the plan year based on an estimate of your expected out-of-pocket medical expenses. Your employer deducts that amount from your paycheck. For example, in 2015, the deposit may be up to $2,550.
Taxes. Do you pay taxes on the money you put into your FSA? No. You do not pay federal income tax or employment tax on the amount you contribute to the account, nor on any amount your employer may contribute for you.
Unused balance. To spend down any unused balance, some plans offer a grace period at the end of the plan year. Other plans provide a limited carryover to the next plan year. To avoid forfeiting any unused amount in your FSA, it is important to know what kind of plan you have, and not to overestimate the qualifying expenses you expect to incur during the year.
Coverage period. Generally, there is an open-enrollment period each year. To change or end your enrollment early due to a change in your family or employment status, you need to know if your type of plan permits such a change before the end of the plan year.
How do you file a claim from your FSA? To use funds from your FSA, you either submit a claim for reimbursement or you can use the debit card, credit card, or stored value card provided by the vendor that oversees your account. These cards access your FSA at IRS-approved healthcare providers and retail outlets. The dollar amount on your card is your available FSA balance.
If you expect to spend only a few hundred dollars during the year, you may not need an FSA. But for many individuals with predictable medical costs or ongoing treatments not covered by a company health plan, an FSA is a good way to ensure having funds when needed and, at the same time, lower your federal tax bill.
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Provided by courtesy of Herb White, MBA, CFP©, a CERTIFIED FINANCIAL PLANNER™ Life Certain Wealth Strategies is a marketing name for securities and investment advisory services offered through Woodbury Financial Services, Inc., Member FINRA/SIPC and a Registered Investment Adviser. Insurance services offered by Herb White are independent of Woodbury Financial. America’s Wealth Management is not affiliated with Woodbury. 8400 E Prentice Ave, #715 Greenwood Village, Colorado, www.lifecertain.com, (303) 793-3999.