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Employers often offer a host of options for employee benefits including the FSA or Flexible Spending Account. Deciding which benefits to take advantage of and which to leave behind can be an overwhelming task. Health insurance is a common benefit with lots to consider; often rolled into the conversation is something called an FSA.
What is a flexible spending account (FSA)? It is an optional account for employees provided by their employer through an employee benefits plan for a specific use of funds. The most common uses include medical expenses as defined by the IRS and dependent care expenses such as daycare.
Five FSA Tips You Cannot Ignore:
- Savings plan: FSAs are pre-tax savings plans that can save employees on payroll taxes. Rather than tax on a gross amount of $800, an FSA contribution of $50 per paycheck reduces taxable income to a gross of $750. Over time the savings can really grow!
- Use it or lose it: A disadvantage of an FSA plan is that the funds available are available only for a certain period of time. For most plans the funds are available for a calendar or fiscal year. If the employee doesn’t use the money in the timeline defined, they lose the money.
- Medical Expenses: One of the most common reasons employees opt-in to an FSA is to have a built in savings plan for medical expenses that are not covered by their health plan. Individuals and families with expected out of pocket medical expenses are encouraged to find out more about available FSA plans.
- Eligible Expenses: While the IRS determines the list of coverage for FSA plans, the long standing items covered include deductibles and copays for medical expenses.
- Savings amount: Determining the amount to save in an FSA is different for each person, family and situation. Common factors to consider include whether or not you have children, uncovered medical expenses and reduced coverage for certain care. Services that may nor be included in health care coverage – and included in FSA coverage – may include dental work, eyeglasses or contacts, chiropractic care, co-pays and prescriptions.
Because the rules about these accounts are constantly changing with the IRS, it is important to ask and understand the latest information. For additional information on FSAs please visit www.irs.gov or ask your benefits provider.
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