Posted by Lash Tax Service

Why You Should Use A Flexible Spending Account

Why You Should Use A Flexible Spending Account

If you acquired a health plan through a job, you could use a Flexible Spending Account (FSA) to pay the co-payment, deductible, some medications, and other health care costs. By using an FSA, you can reduce your taxes.

What Is An FSA?

A Flexible Spending Account (FSA) is a type of savings account available in the United States that offers tax benefits specific to an account. Created by an employer for an employee, the account allows employees to contribute a portion of their regular income to paid expenses, such as medical expenses or indirect costs.

You do not pay taxes on this money. This means that you save an amount equal to the commissions you would have paid for the money you have reserved.

Employers can make contributions to the FSA, but they are not obliged to do so.

Use the FSA when filing a complaint with the FSA (through your employer) with proof of medical expenses and a statement that your plan has not covered it. You will receive a refund of your costs. Ask the employer how to use the specific FSA.

There are three types of FSA.

FSA Health Care - You can use this account to pay for prescription drugs, dental care, vision care, hearing, and medications for you, your spouse, and taxpayers.

FSA For Dependent Care: You can use this account to pay support costs for children and adults, such as childcare, before and after school hours, nursery school, childcare, and summer camps.

FSA For Limited Purposes: As a rule, you can use this account to pay for eligible expenses for dental care and consultations. Other expenses may also include prescriptions, over-the-counter items, and other health care costs based on the plan. You can sign up for this account if you have a Health Savings Account (HSA).

How to Use An FSA

Although it is not possible to use the FSA for insurance premiums, you can use them for participation fees, co-insurance, deductible, prescription and dental, and vision fees, according to the IRS.

FSA can also be used for medical equipment and treatments such as:

  • Drugs prescribed by a doctor.
  • Blood sugar testing supplies.
  • Birth control.
  • Breast pumps.
  • Pregnancy tests.
  • Insulin.
  • Bandages.
  • Crutches.
  • Acupuncture.
  • Chiropractors.
  • Psychological treatment.
  • Smoking cessation programs.

You cannot use your FSA to buy gyms, over-the-counter medications, vitamins, or beauty treatments. In some cases, such as stopping smoking or dietary advice, it may be necessary to send a doctor to prove that the treatment covered is really necessary. For a complete list of covered treatments and rules, see the IRS approved Medical Expenses document.

Restrictions on Flexible Spending Accounts

There are boundaries to how much you can contribute each year to an FSA account. For FSA medical accounts, the limit is defined by the employer. Each FSA is limited to $2,600 per year for each employer. If a person is married, she can set the same $2,600 limit to an FSA through her employer. Funds from an FSA can be used to pay for certain medical and dental expenses, even for dependents and spouses.

These funds can also be used to offset deductions and payments when providing medical services. However, the money cannot be used to pay insurance premiums.

Prescription drugs, which have been prescribed by a doctor, can be paid in cash by an FSA. This includes insulin reductions. Purchases of medical equipment, such as diagnostic devices, bandages, and crutches, may be covered by the FSA.

As a general rule, all funds allocated to an FSA should be used by the end of the year. However, employers can offer a maximum of two and a half months to use these funds. If this option is not used, employers can allow workers to carry over $500 from unused funds to the following year. These options should not be offered by an employer. If they are, the employer can offer only one of these options.

At the near end of the year or the grace period, all funds left in the FSA will be lost. This requires FSA holders to carefully plan the amount of funds to be placed in the account and how they will be spent throughout the year.

The extent of federal tax savings offered by an FSA may vary. For a person who saves 30% of federal taxes, if she earns $50,000 and places $2,000 on an FSA, she could save about $600.

Lash Tax Service