On your first day at a new job, you may be asked to sign a flurry of documents enrolling you in programs with many acronyms. 401k, HSA, FSA…what do all of these mean? These programs promise to take some income out of your paychecks so that you can save for life events like retirement or medical expenses. The accounts are seen as safety nets for these situations since often people who are hit by unexpected costs like hospital visits do not have a way to pay for them. One particular account, the FSA, or Flexible Spending Account, has undergone changes and developments under the Flexible Spending Account Healthcare Reform.
What is an FSA?
But what is an FSA? An FSA is a voluntary savings account for your medical expenses, vision care, and dental care. You contribute to an FSA by having your employer take a set amount out of money out of your paycheck before taxes, thereby reducing your taxable income. This pre-tax money typically ends up on a debit card, and you can pay off bills for yourself or your dependents. There is an annual limit of how much you can contribute to your FSA (and thus how much of your tax burden could be reduced). In 2018, it was decided that the FSA limit will be increased from $2600 to $2650. This limit is for a Medical FSA. If you are a parent looking for a savings account to cover your children’s expenses, you would be using a Dependent FSA. Your limit to contribute to that is $5000. If you are married and file separately from your spouse, you can each contribute up to $2500, as long as that does not exceed the lesser earning member’s yearly income.
What is the Difference Between a Medical and Dependent FSA?
There are many different kinds of expenses for which you can use your Medical FSA funds. They may vary from state to state and from employer plan to plan, but the general guideline for eligibility is that the expenses must aid in diagnosing, treating, curing, or preventing a disease. The FSAfeds.com website has a useful tool for checking what kinds of Medical FSA expenses are eligible. Prescription drugs are covered, but non-prescription drugs, supplements, vitamins, and general “wellness” items usually are not covered.
Dependent FSA’s, which you can use for expenses for your children or anyone else you take care of, have their own eligible expenses. These are programs like day care, elderly care, preschool, and babysitting expenses. Parents and caretakers spend a large chunk of their monthly income on their dependents– up to 7.8 percent in most cases. So having an account where they can put their pre-tax income to pay for such expenses can be invaluable for caretakers struggling to pay.
This year’s healthcare bill has impacted Dependent FSAs. Though it will not take effect until 2023, Dependent FSAs will not be considered tax-deductible and may not exist altogether.
“Use it or Lose it”
If you are a person with many medical related out-of-pocket expenses, using a Medical FSA can help you budget for such medical events. If you are a person with health insurance without a very high deductible and you are relatively healthy, you may find a better use for your paycheck. Another drawback is that FSAs typically operate on a “use it or lose it” system. So if you contribute the maximum allowable voluntary amount of $2650 to your medical FSA, and then you do not incur those expenses, you do not get that money back at the end of the year.
There are two exceptions to having to lose your contributions at the end of the year. One exception is called the carryover rule. You can carry over up to $500 of your unused contributions to your plan the next year. Additionally, there is a grace period of two and half months after your plan ends to use up the extra amount in your account.
What can I use my leftover Medical FSA funds on?
If you want to fully use up the entire amount in your Medical FSA (rather than carrying over $500 or “losing” it) , there are some different ways to think about doing so. Do you have kids who often get injured? Stock up on band-aids. Is your sunscreen old and expired? Buy some more sunscreen. If you take birth control pills, ask your doctor for a 90 day supply since that would cost more than a month’s worth of pills. Are you slacking on those appointments you should be getting annually, like a vision exam? Not only are these exams preventative for future diseases but also you can write those off on your FSA. If you have a medical condition that has required you to remodel your home in some way, like building a ramp, you can expense that as well.
If I have a Medical FSA, can I still use SingleCare coupons?
Whether you have a medical FSA or not, using a SingleCare coupon may help you reduce the amount you pay for prescription drugs, dental care, vision care, and telehealth visits (visiting a doctor via a video chat.) You can save money on prescriptions by searching for the ones you take at singlecare.com and then obtaining a SingleCare card or coupon. SingleCare can help you save on one time prescriptions (like antibiotics) or for chronic conditions (like diabetes.) For dental care, you can search SingleCare for your location and dental needs. And the same goes for vision care. See singlecare.com for more details.
What are Examples of Eligible Expenses?
- Yearly checkups — annual physicals, eye exams, dental exams, ob/gyn exams
- Copays, co-insurance, deductibles
- Dental x-rays
- Prescription medications
- Blood tests
- Dieting programs
- Medical home remodeling
- Conferences you attend for a medical condition
- Lodging or meals incurred from medical treatments
- Insurance premiums
- Glasses, contacts, and contact lens care
- Breast pumps and supplies
What Can You NOT use your Medical FSA for?
- Cosmetic surgery
- Wellness products like supplements
- Products that have not been proven to treat or cure any illness, like essential oils or juice cleanses.
- Non-FDA endorsed dieting programs