Why contribute: to save money on taxes and be better prepared for medical expenses.
Simple, to save money on taxes and be better prepared for medical expenses. The 2019 FSA contribution limit is $2,700 for individuals. FSA contributions are taken out before taxes. The more you contribute (up to the IRS limits) the more you reduce your taxes.
FSA Tax advantages:
- You contribute tax free through a payroll deduction to reduce your taxable income.
- Spend tax free- If withdrawals are used to pay for qualified eligible expenses you won’t pay tax when you take money out
Who can contribute?
- FSA’s allow both you and your employer the ability to contribute to the account.
- The maximum contributions combine you and your employers’ contributions.
- Any funds put into your FSA are YOURS, but your employer manages it.
- You can use the money on qualified medical expenses for yourself, your spouse, and your dependents.
How to contribute
- FSA contributions are determined during your open enrollment period each year. See you HR specialist for more details.
- Once your elections have been made, FSA contributions will be done through a payroll deduction.
- The funds are kept in the company’s bank account.
- The funds in your FSA are “frontloaded”, meaning that you have access to your total yearly contribution on day 1 of the plan year even though your full contribution have not been made. This is not the case for a Dependent Care FSA.
How much to contribute
Since the FSA is a use it or lose it account it is important to have an accurate estimation of the amount of out of pocket medical expenses you will have for the year and compare that to your deductible amount. Some FSA’s allow up to $500 to roll over to the next plan year. Check with your employer for details.
To decide how much you should contribute to your FSA:
Estimate your yearly costs for:
Eye exams/corrective lenses
If you’re confident that you will end up paying those costs out of your own pocket, consider using the tax free option with an FSA to make your dollars go farther.