How your FSA works, and why you need to spend it already!
If you have a flexible spending account (FSA) and there’s still money left over, this is the time to file claims for all those precious health reimbursements. Why now? Some FSAs expire on December 31, and if you don’t use the money, you lose it. (Some companies offer a grace period through March 15, so check with your employer.)
Your goal: Don’t leave money on the table. According to the Employee Benefit Research Institute, on average, employees who put more than $1,100 into their FSAs end up losing $100 in leftover cash. This happens when people overestimate how much they’ll need, since FSAs require that you take one big guess in the beginning of the year and hope that you’re right.
Until the rule changes, you may be wondering how to spend those funds fast. Or some of you may be considering signing up for an FSA for next year. (If so, ask your company when open enrollment ends—it’s likely December 31 or earlier, so hurry). Here’s the gist on FSAs and how to spend ‘em:
What is an FSA? It’s a pre-tax account offered by most large employers that allows you to set aside a portion of your income—typically anywhere from $60 to $2,500—to pay for specific medical expenses that aren’t covered by health insurance.
How does an FSA work? Once you enroll, choose how much money you want to put in your FSA. (To estimate, make a list of the medical expenses you’re likely to pay in the coming year, and cross off any that aren’t eligible.) Then, that money is deducted pre-tax (your salary appears lower, so you pay less in taxes) from each paycheck and put into your FSA. When you have appropriate expenses, you either pay out-of-pocket and submit a claim (which is then reimbursed with your FSA funds) or use a debit card (which draws from your FSA account).
What can you pay for using an FSA? Common expenses include eyeglasses, contact lenses, dental care, allergy shots, chiropractic sessions, and transportation to or from the hospital or doctor’s office. It can be used for deductibles and copayments on doctor’s appointments and prescriptions, and many FSAs will also cover daycare costs. You can also expense some over-the-counter meds, but you need a doctor’s prescription to do so. WageWorks has some good suggestions for 10 common over-the-counter items you can pay for with your FSA. Check out the FSA Store, an online shop with thousands of FSA-approved products.
What can’t you expense? You can’t use it for things like cosmetic surgery, electrolysis, or a health club membership. (Although if you need a weight-loss program or some other activity to help with a medical condition, it may qualify, so check.) Always check the FSA provider’s list of qualified purchases and ask your plan administrator before you assume a health-related expense is not covered.
For those with an FSA, did you underestimate, overestimate, or get it just right?