Flexible Spending Accounts (FSAs)
A health care FSA can reimburse you or help you pay for eligible health care expenses not covered by your health plan. The portion of your paycheck you put into your FSA is taken out before you pay federal income taxes, Social Security taxes and most state taxes. It’s a great way to save money.
Generally, contributions you make to your FSA are not subject to federal income taxes or social security taxes. In most instances, there are no state taxes taken out either.
The amount you may save depends upon:
- The amount you put into your FSA
- The tax percentage you would normally pay on that money (tax bracket)
Your employer sets the allowed employee contribution limits but can not exceed the IRS allowed amount which is medical $2,750 effective 1/1/20 ($2,700 prior to eff date 1/1/20) and dependent care $5,000 (or $2,500 if the employee is married and files a separate income tax return).
It’s good to plan ahead.
Decide the amount you want in your FSA?
- Consider the medical, vision or pharmacy costs not covered by a health plan. Need dental work? How about contact lenses? Buy cold medicine, aspirin and sunscreen throughout the year? With a written prescription, your FSA may help pay for these items and more.
- Also look at family changes that might have an impact on your expenses.
It is also important to understand your companies plan set-up as it relates to “run-out period,” “grace period,” and “roll-over” (see Plan Features – download). These factors will have an impact as to whether you can roll over a portion of your unused balance at the end of the year or it may be that your company has allowed you more than 12 months in which you can use your funds. Lastly, it is important to understand how long you have to submit your receipts for the previous plan year before the option expires.
Employees who terminate their employment before the end of the flexible spending account year have several options. They may forfeit their flexible spending account balances if they fail to continue scheduled contributions and revoke their benefit elections; or, they may continue to contribute to the flexible spending account through COBRA until year’s end, thereby continuing to be covered by the plan until the end of the plan year.