If you’re enrolled in an employer-sponsored health care plan, you may be able to save money by opening a flexible spending account, or FSA.
What Is an FSA?
An FSA is an account you put money into directly from your paycheck, and the money is used to reimburse you for or help you pay for eligible health care costs that aren’t covered by your health, dental, or vision insurance plan. Using an FSA can save you money because you do not have to pay taxes on the funds you put into it.
Guidelines for Using an FSA
You can contribute a maximum of $2,600 per year into your FSA and use that money to cover regular, predictable health care expenses that you or your qualified dependents may incur during the course of the year. Your employer may also require a minimum contribution to your FSA. Read your enrollment details carefully to see whether this is the case.
Generally, all expenses must be incurred during the plan year and filed for reimbursement by tax day to receive reimbursement. Expenses are eligible if they are medically necessary, in accordance with the IRS’ rules, and not reimbursed by a health care plan.
Eligible medical expenses include, but aren't limited to:
- Medical plan deductibles, copayments, and coinsurance
- Prescribed medications, including birth control pills
- Prescribed drugs and programs to stop smoking
- Routine medical exams
- Medical equipment such as crutches
Dependent Day Care FSA
Health FSAs are the most common type, but there are also FSAs that can help you reclaim some of the expenses associated with childcare or care for other dependents while you’re working or attending school on a full-time basis. If you’re a single parent, you’re eligible for this type of FSA even if you aren't working full time.
Funds in the dependent day care FSA are pretax and can be used for day care expenses for children who are under the age of 13 and are your dependents for tax purposes. They can also be used for anyone who is older than 13, lives with you at least eight hours a day, and needs supervised care (such as an elderly parent or disabled spouse or child). Note that private school and summer overnight camp fees are not eligible for reimbursement.
Each year, you can contribute a maximum of $5,000 to your dependent day care FSA —$2,500 if you are married but filing taxes separately (married couples have a combined $5,000 limit even if filing separately). And as with health FSAs, your employer may have a minimum contribution requirement.
If either type of FSA sounds like a good fit for you, speak to someone in your human resources department to see if your employer offers them. Then review the IRS guidelines in Publications 502, 503, and 969 before setting up your account and contributing to either type of FSA.
You can also learn about other ways to reduce your health care costs.
