How Flexible Spending Accounts Work • Benzinga


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Flexible Spending Accounts (FSA) are a tool you can use to pay medical bills and save on taxes each year. It is a good option for those who need financial assistance for medical expenses and those who have chronic health conditions that require regular treatment. An FSA can be beneficial for many different people, but make sure you know what you’re getting into before opening an account, as there can be risks involved.

What is a Flexible Spending Account?

You can use a Flexible Spending Account (FSA) to make co-payments, certain prescription drugs, deductibles, and other out-of-pocket healthcare expenses. Use a flexible spending accountyou can reduce your taxes — you don’t have to pay taxes on the money you put in the account. Employers sometimes volunteer to make contributions to employees’ FSAs, but they are not required to do so. Flexible spending accounts are sometimes referred to as flexible spending arrangements.

Although your employer is not required to contribute to your FSA, they must create and maintain the account. If you open an FSA, you have immediate access to all the money in the account on the first day of each year. While it may be an added expense for your employer, an FSA can ultimately be very beneficial to you, the employee, and the employer if the plan works well and there is good uptake overall.

Expenses an FSA can cover

The purpose of an FSA is to help you pay for certain healthcare-related expenses that may not be covered by your employer’s health insurance plan. FSAs can be used to pay for various expenses for you, your spouse, and dependents. These medical expenses may include dental expenses even though dental expenses are not a mandatory benefit under the Affordable Care Act (ACA). It is important to note that you cannot use an FSA to pay your insurance premiums.

Here are some of the expenses your FSA can cover:

Deductibles: Your plan’s deductible is the amount you pay before your health insurance plan kicks in and starts paying your medical expenses. You usually have to reach your deductible before you can start using your health insurance benefits. For example, if you have a $1,000 deductible, you must contribute $1,000 towards your medical expenses before your insurance will cover anything. Your FSA can be used to pay the deductible so you don’t have to pay it out of pocket.

Co-payments: User fees are a fixed amount you pay for a health service covered by your insurance. Co-payments are made after you pay the deductible, and the amount varies depending on the service you receive. For example, you might have a $50 co-pay for doctor visits, so you have to pay $50 each time you visit the doctor after you hit your deductible, while your insurance pays the rest. Funds in your health savings accounts can be used to make your co-payments.

Prescription drugs: Prescriptions can be paid for by an FSA. However, the expense can only be paid if the medicine has been prescribed by a doctor. This means that you cannot use your FSA for over-the-counter drugs.

Medical equipement: You can cover the expense of any type of medical equipment with an FSA, regardless of whether the equipment is installed in your home or in your car. Equipment that does not require installation can also be paid for through your FSA. Other medical equipment that may be covered includes contact lenses, oxygen machines, crutches and wheelchairs.

Capital expenditure: Capital expenditures that may be covered by an FSA generally relate to improvements made to your home for the purpose of medical care or improving accessibility for you, your spouse or dependent. Examples of capital expenditures that may be covered by your FSA may be widening doorways or hallways, modifying stairs, installing porch lifts, lowering or modifying kitchen cabinets and counters. and installing railings in your bathroom.

Dental treatments: Expenses relating to the relief and prevention of dental disease may be covered by your FSA. This can include treatments such as teeth cleaning, sealant application, fluoride treatments, braces, x-rays, fillings and extractions. It does not include purely cosmetic procedures like teeth whitening.

These are just a few examples of how you can use your FSA funds. You can view a full list of treatments and services for which you can use your FSA funds on Healthcare.gov.

Who needs an FSA?

Although an FSA may seem more beneficial for those with significant healthcare costs, it can be useful for people with all different levels of healthcare-related needs. Whether you need an FSA depends on your healthcare costs and your own circumstances. Here are some examples of people who might consider an FSA account.

Anyone concerned about healthcare costs: Whether you currently have high healthcare costs or know you may have to pay medical bills in the coming year, setting aside funds in an FSA can give you peace of mind.

Those who have employer contributions: Your employer can contribute to your FSA, but it is not mandatory. If your employer contributes, it makes sense to take advantage of it. Not only will some of your out-of-pocket payments be covered by your employer’s contributions, but it can also alleviate nervousness about the possibility of losing funds.

Parents: An FSA is beneficial to parents and allows you to pay for medical expenses related to your dependents, including your children. If you have children, an FSA facilitates the payment of all small medical expenses related to the birth of a child, which can accumulate during the first years of the child’s life.

People with chronic illnesses: If you have a chronic condition, your healthcare costs could be much higher than those of someone who does not have a chronic condition. With an FSA, you will be able to save money on medical expenses by diverting some of your income to a tax-advantaged account.

FSA Limits

There are certain limits you must adhere to regarding your FSA. FSAs are limited to $2,850 in contributions per year per employer. If you are married, your spouse can also contribute up to $2,850 to your FSA per year. You must generally use FSA funds within the year they are deposited. However, your employer may allow a grace period which may extend the time you can use your FSA funds for up to 2.5 months after the end of the year.

Additionally, employers may also allow you to carry forward up to $570 into the following year. Your employer is not required to offer either option, but if they offer one, they cannot offer both. This means your employer may offer you a 2.5 month grace period or a deferral of up to $570, not both.

Compare health insurance

If you don’t have access to an FSA because your employer doesn’t offer that choice, you’ll want to make sure you have a comprehensive health insurance plan that fully covers your medical needs. Benzinga offers information and reviews on the following health insurance providers. Start your research using the links below to find the right health insurance.

Save money on healthcare expenses

If you, your spouse, or a dependent has a chronic condition that requires regular care, you may find that medical costs begin to quickly become unmanageable. An FSA can help you save money on medical bills and pay less tax. It’s important to remember that you must use up all of your FSA funds within one year, unless your employer offers rollover options. An FSA may not be beneficial for anyone who does not need advanced medical care on a regular basis.

Frequently Asked Questions

What is covered by a flexible spending account?

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What is covered by a flexible spending account?

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Sarah Horvat

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Various medical expenses are covered by a flexible spending account, including deductibles, co-pays, eligible prescription drugs, medical devices and equipment, capital expenses, and dental treatments. Expenses covered by an FSA extend from you to your spouse and/or children if you have any.

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Is it worth having a flexible spending account?

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Is it worth having a flexible spending account?

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Sarah Horvat

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The value of a flexible spending account depends on you and your situation. You may think you can’t afford to deduct anything else from your salary if you have a chronic condition that requires ongoing medical expenses. If your medical bills are higher than average, an FSA lets you pay for the things you need tax-free without having to wait or save for them. As long as you have fairly predictable medical expenses, an FSA may be worth it because you save on taxes.

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