An FSA or a “Flexible Spending Arrangement” is a tax advantaged account that allows you to take money from payroll and deposit it PRE-TAX into an account that will be used to pay for healthcare expenses.
FSA – Flexible Spending Arrangement
What is it?
An FSA or a “Flexible Spending Arrangement” is a tax advantaged account that allows you to take money from payroll and deposit it PRE-TAX into an account that will be used to pay for healthcare expenses. Both you and your employer can put money into your FSA.
Your employer manages your FSA account, but the money is yours. You can determine how much you would like to contribute to your FSA at the beginning of each fiscal year. The yearly maximum contribution for 2019 is $2,700 for per individual. In 2020 the amount will increase to $3,550 per individual.
Your account is a “use it or lose it” account, meaning that you need to spend the money during that year, or you will lose it. However, some plans allow you to carry over up to $500 into the following year without loss.
There are 3 primary types of FSA’s
Health FSA – This is the most common type of FSA and is used to pay for medical and dental expenses not paid for by insurance. The money in this account can pay for deductibles, co-payments, prescription medication, eyeglasses, and much more. You can even pay for over-the counter items if you need to “spend down” at the end of the year! The complete list of qualified medical expenses can be found in IRS Publication 969.
Limited Scope FSA – A limited scope FSA is used when you have a High Deductible Health Plan with an HSA (Health Savings Account) and can only be used for dental or vision care. This would include things like eye exams, dental or eye surgery, glasses, contact, teeth cleaning and more. Some plans allow you to reimburse yourself for medical expenses incurred after your deductible has been met for you, and sometimes your spouse and child. Check with your employer for details on what your Limited Scope FSA covers.
Dependent Care FSA – A dependent care FSA can be established to pay for certain expenses for your dependents. It can be used for childcare expenses if you have a child under the age of 13 or a special needs child over the age of 13. It can also be used for a spouse who is unable to work and care for him or herself. It can be used for adult daycare for senior dependents. Anyone that you are including must be claimed as a dependent on your federal tax return. The yearly maximum contribution is $5,000, or $2,500 if married and file separate tax returns. Information can be found in IRS Publication 503. Check with your employer for details on the availability of a dependent care FSA.