A healthcare flexible spending account (FSA) is an account that allows employees to put aside, pre-tax through payroll deductions, up to $2,750 each year to cover the cost of qualified medical expenses, such as copays/coinsurance, prescriptions, dental and vision bills, or even many over-the-counter medical supplies.
FSAs are subject to a use-it-or-lose-it rule, so you forfeit any money left in the account that you don’t spend by the end of the year to your employer. However, many employers allow you to extend this a bit, with either a grace period of 2.5 months or a $550 rollover.
But not all FSAs offer these options. Ask your HR department if you have questions about the deadline to spend your FSA funds.
What are the benefits of a flexible spending account?
An FSA allows you to withhold a portion of your taxable income, instead depositing that money pre-tax into an account that will reimburse you for qualified medical expenses.
This tax-free money can help you pay for thousands of healthcare-related costs you would normally have to cover out-of-pocket. You can also use your FSA funds to cover medical expenses for your qualifying dependents, including your spouse, children up to age 26, and any adult dependents you claim on your tax return.
What can I use my flexible spending account for?
You can use your FSA to cover a large (and growing) selection of health and wellness products, from bandages and over-the-counter medicines to specialized medical equipment.
Healthcare FSA funds can be use to pay for the diagnosis, cure, mitigation, treatment, or prevention of disease, affecting any structure or function of the body. There are more than 4,000 eligible products, including:
- Prescription and over-the-counter medicines
- Copays and coinsurance for doctor visits
- Prescription eyeglasses or contact lenses
- Menstrual care products
- First aid supplies
- Dental expenses
- Medical devices
- Home health care items
Is a flexible spending account worth it?
FSA administrators make it easy to manage your account, including providing convenient online portals FSA cards to cover qualified health expenses at the point of sale, and simple reimbursement processes if they don’t provide a card. Because the funds are deposited pre-tax, FSAs can have a substantial impact on your finances: A family making the median US household income ($59,000 per year) that funds their FSA to the maximum for 2021 ($2,750) will save almost $1,000 in federal taxes each year.
At Kamm Insurance Group, we are happy to be your local independent agent and take pride in your insurance coverage. Contact one of our benefits advisors to review your information and determine the solution to your benefits needs.