Healthcare benefits can be confusing, but they are essential to help you take control of your physical health and finances. One common type of benefit offered by employers is a flexible spending account (FSA). If you’re wanting to understand what a flexible savings account is and how to use it, keep reading.
What Is an FSA and How Does It Work?
A flexible spending account (also known as a flexible spending arrangement or an FSA) is an account you can use to pay out-of-pocket healthcare costs. For example, it helps you cover any co-pays your insurance doesn’t cover.
How does an FSA work?
When you have an FSA, you contribute a portion of your regular earnings to the FSA. This is money you contribute and it can’t be taxed. Putting money into the account lowers your taxable income. Your employer may also contribute to the account, but they aren’t required to.
Typically, you submit a claim to your FSA with proof of medical expenses. You’ll also need to make sure you can prove it wasn’t covered by your insurance. You’ll then receive reimbursement. In other cases, FSA funds go on a card, functioning like a debit card for healthcare expenses. Ask your employer how to use your account.
How do I set up an FSA?
First, make sure your employer offers an FSA. Employers don’t have to offer this benefit. If they do, you can enroll in or make changes to your HSA when you’re first hired, and during open enrollment (OE). Speak with your organization’s HR team if you need help.
Flexible spending account eligible expenses
When you have an FSA, not every healthcare expense is eligible. Only qualified expenses can be covered by an FSA, including any costs related to:
For example, you could use an FSA to pay for prescriptions, medical services, equipment, or transportation costs. You can even use it to cover over-the-counter medicine and feminine menstrual products.
What’s the Difference Between an FSA and an HSA
Many people get a flexible spending account (FSA) confused with a health savings account (HSA). This isn’t surprising because while they’re different, there are several ways the two are very similar.
So what’s the difference between an HSA and an FSA?
For one. employees have more control over an HSA. If you leave your job, you’ll still have access to your HSA. An FSA is employer-controlled, so if you leave your job, you lose those funds.
Additionally, you’re only eligible to open an HSA account if you have a high-deductible health plan (HDHP). If your insurance isn’t considered an HDHP, your only option is an FSA.
Contributing to Your FSA
How much you’re able to contribute to your FSA changes from year to year. From 2021 to 2022, the limit increased by $100. In 2022, you can contribute up to $2,850 to your health FSA. If your spouse has an employer-provided FSA, they may be able to also contribute to your FSA.
Do my FSA contributions roll over?
It depends on your employer. Sometimes, your FSA contributions won’t roll over if you don’t spend the money by your employer’s deadline. The deadline is often March 31st of the next year. However, some employers allow your funds to roll over into the following year. Other employers may offer a grace period after the deadline ends, where you can still access your money. Check with your employer to see whether your FSA funds expire, or if you can still use them after the annual deadline.
Does contributing to my FSA save me money?
Whether or not you save money depends on how you manage your FSA. Technically, yes, contributing to the FSA lowers your taxes and saves you money. However, if you’re contributing too much, and you’re not using all the money before it expires, you lose money. Overloading your FSA because it’s not taxable isn’t the best approach. You have to use all the money or you lose it.
Flexible Spending Account FAQs
What qualifies for a flexible spending account?
You qualify for an FSA if your employer offers one. However, your employer isn’t required to provide one to you.
Can I withdraw money from my FSA card?
No, you can’t withdraw cash or a check from your FSA card. The money on the card has to all be spent on eligible healthcare expenses, whether that’s in the form of reimbursements or debited from an FSA card.
What happens if you don’t use the money in your flexible spending account?
If you don’t use the money in your flexible spending account, your funds may be erased completely after the deadline. However, some employers allow your HSA funds to roll over, or they may offer a grace period where you can still use your money.
Is it worth having a flexible spending account?
FSAs can benefit your health and your wallet. As long as you learn how to properly manage the account in a way that optimizes your finances (and results in no losses), having an FSA is worth it.
What are the types of flexible spending accounts?
There are four types of FSAs:
- Healthcare FSA: This has been our focus throughout the entire article. They help your cover out-of-pocket healthcare expenses.
- Limited-purpose FSA: These also help your cover out-of-pocket healthcare expenses, but they’re limited. For example, you may only be able to use them for dental or vision care.
- Post-deductible FSA: If you have a high-deductible health plan (HDHP) policy, you might have the option to contribute to a post-deductible FSA.
- Dependent care FSA: These accounts can help you pay for medical care for your dependents.
A flexible spending account (FSA) can give you the power to manage your medical and healthcare costs — and potentially save thousands of dollars in the process. If your employer doesn’t offer an FSA option, you might want to consider other insurance options that can positively impact your health and your wallet.