Health insurance only covers so much of your medical expenses. It’s essential to have, but it’s not always enough. That’s why, often during open enrollment, many insurees also sign up for an FSA.
The benefit of an FSA is that for every paycheck, you can elect to deposit so much money in the account, tax-free, to use on eligible medical expenses later. Flexible spending accounts (FSAs) are a great way to save money on taxes and fund health care costs. If you’re thinking about using one of these accounts, here’s what you need to know:
What Is A Flexible Spending Account?
A flexible spending account (FSA) is a tax-advantaged savings account that allows you to set aside money before you file your taxes. You can use it to pay for eligible medical expenses or health insurance premiums, such as copays and deductibles.
Setting up an FSA is easy–you just need to enroll in one of the plans offered by your employer or sign up for one if it’s not offered at work. You’ll have until March 15th of each year (or April 1st if you’re self-employed) to contribute up to $2,650 into your account for 2019 ($2,700 for 2020).
Once the deadline has passed and all contributions have been made, there are two ways that this money can be used.
How Do I Use My FSA?
There are rules and regulations regarding when and what money you spend in your FSA accounts. You use the money in two ways: setting up a reimbursement account or creating a pre-tax savings account.
A Reimbursement Account
You can set up a reimbursement account, which allows you to get your money back at tax time. The amount of money you get back depends on how much was spent throughout the year and whether or not it was eligible for reimbursement (for example, if your deductible medical expenses were more than $500).
A Pre-Tax Savings Account
Or, if you’d rather have immediate access to your funds while still having some protection against taxes and penalties later on down the road (if they’re not used), consider setting up a pre-tax savings plan instead. This allows employees who participate in their employers’ Flexible Spending Accounts program(s) (FSA) – usually through payroll deductions -to set aside money each pay period for qualified out-of-pocket healthcare expenses such as prescription drugs or doctor visits without paying taxes on those contributions until withdrawn from their FSA accounts during tax season when filing their federal income tax returns.
Can I Use My FSA To Pay For Everything?
Having money taken pre-tax from your paycheck may sound exciting. Still, you can use your FSA to pay for anything outside of eligible medical expenses or incur tax penalties at the end of the year. Qualified examples include copays, deductibles, coinsurance, and prescribed medications.
Who Is A FSA For?
The FSA is an excellent option for people who have high-deductible health plans. But you can also use an FSA if you are self-employed or own a small business, as well as if you are a contract employee.
If your employer offers a health plan with an HSA or MSA, they may require that the funds be used for qualified medical expenses only (such as copays). If this is the case and no non-medical withdrawals are allowed from your account, then an HSA will be better suited to meet those needs than an FSA would.
FSAs and the IRS
It’s essential to know how your employer will track the use of your FSA money.
The IRS requires that employers keep track of their employees’ Flexible Spending Accounts (FSAs) and any expenses reimbursed from them. If you spend too much on non-qualified items and don’t have enough left over for your medical bills at year’s end, you may have to pay taxes on those unspent funds–even if they were initially intended for medical purposes!
FSAs: A Great Way To Save On Your Medical Expenses
Electing to use an FSA account is typically an excellent financial choice depending on how many extraneous medical care expenses you have each year. Utilizing FSAs save you valuable tax dollars while allowing you to save up throughout the year, one paycheck at a time.
Insuraway Can Help
Are you looking to open an FSA with your health insurance plan to save money on yearly expenses? Insuraway can assist you in understanding your options and enrolling in an eligible plan. Call us at (888) 248-5420 to find out more!
