How FSAs Work
FSAs can help bridge the gap left by other health insurance plans. They allow employees to use tax-free funds to cover out-of-pocket health care expenses, and they sometimes replace a traditional employer health insurance plan.
Employees can also use their FSA to supplement a marketplace plan. In other cases, the FSA may supplement an employer-sponsored health care plan. Either way, the FSA has one central purpose: to cover out-of-pocket expenses.
Employees contribute a limited amount of money to their FSA each year. These funds are taken out of the paycheck before taxable income is calculated. Afterward, employees have one year to use their funds on approved health care expenses. FSA funds can apply toward deductibles, copayments, and coinsurance. Some prescription drugs and over-the-counter medications are covered. Employees can even pay for medical devices like crutches using their FSA.
Tax savings represent the main benefit of an FSA. Since the funds are removed before taxes, employees have a lower taxable income. Some employees find that an FSA increases their take-home pay. The funds in an FSA are available at all times, with few restrictions. Most FSAs are linked to a debit card for added convenience. Patients can then use their FSA debit card at their doctor, dentist, or pharmacy. Patients usually do not need pre-approval or to do other paperwork.
Employees can only contribute a certain amount of money each year. For most employees, the limit is $2,750 per year. Spouses can also contribute an equal amount to their own FSA. Additionally, FSA funds are tied to an employer. If an employee changes jobs, they cannot keep their current FSA.
FSAs funds are "use it or lose it." At the end of the year, employees can roll over up to $500. The remaining unused funds are forfeited to the employer. Employees must keep an eye on their FSA balance. It's up to each patient to ensure that they use their funds before they expire.
Your employer may offer a flexible spending account (FSA) as part of your benefits package. With an FSA, you can set aside money from each paycheck for health care expenses. These funds are not taxed, and you can withdraw the funds as needed. You can decide how much you want to contribute each year.
Maximum annual contributions can vary. If you have a medical FSA, your yearly maximum is $2,750. With a dependent care FSA, the yearly maximum is $5,000. Your employer can provide more details about their policies.
Most employers use their FSA to pay for expenses not covered by their health insurance policy. The funds can apply toward out-of-pocket costs like deductibles, coinsurance, and copays. You might also use your FSA for dental, orthodontic, and vision care.
You can roll over up to $500 from one year into the next. However, the remaining money will be forfeited to your employer at the end of the year. Patients should keep an eye on their FSA balance and use their funds before the year's end.
Unlike HSAs, FSAs are owned by employers. If you leave your current employer, you can't take the funds with you. Instead, you must use up your funds before your employment is terminated. Otherwise, you forfeit the remaining balance to your employer.