Learn why you should open a Flexible Spending Account

Please Note: You should check with your employer to see if a Flexible Spending Account is part of your benefits package.

What Is a Flexible Spending Account?

Sometimes referred to as a cafeteria plan, flex plan, or a Section 125 plan, a Flexible Spending Account (FSA) lets you pay for eligible medical expenses on a pre-tax basis (there are also similar accounts for dependent and child-care expenses).

If you expect to incur medical expenses that won’t be reimbursed by your regular health insurance plan, you should take advantage of your employer’s FSA if one is offered.

How Does a Flexible Spending Account Benefit You?

An FSA gives you a rare opportunity to spend your money before it is taxed. The contributions you make to a Flexible Spending Account are deducted from your pay BEFORE your Federal, State, or Social Security Taxes are calculated and are never reported to the IRS. The money you put into an FSA will decrease your taxable income and increase your spendable income.

How Do Flexible Spending Accounts Work?

At the beginning of the plan year (which usually starts January 1st), you complete a form indicating how much money you want to contribute for the year (there are limits).

You have only one opportunity a year to enroll, unless you have a qualified “family status change,” such as marriage, birth, divorce, or loss of a spouse’s insurance coverage. The amount you designate for the year is taken out of your paycheck in equal installments each pay period and placed in a special account by your employer.

As you incur medical expenses that are not fully covered by your insurance, you submit a copy of the Explanation of Benefits (EOB) or the provider’s invoice and proof of payment to the plan administrator, who will then issue you a reimbursement check.

What Expenses Are Eligible for Reimbursement?

Any expense that is considered a deductible medical expense by the Internal Revenue Service and is not reimbursed through your insurance can be reimbursed through the Flexible Spending Account.

Click Here for a list of eligible expenses 

Certain over the counter (OTC) drugs can also be paid through your FSA

Click here for a list of eligible OTC expenses 

How Do I Decide How Much to Contribute to My Flexible Spending Account?

It’s important to give some thought to calculating how much money to contribute for the year, because if you put in more money than you need, by law, you lose it. You have three months after the end of the calendar year to submit claims for eligible expenses incurred during the previous calendar year. Any money left in your account after the three months will be forfeited.

Click Here for an easy FSA calculator

Remember to be conservative so you don’t risk forfeiting any money.