Are you feeling the pinch of rising costs? A flexible spending account (FSA) can help you save on healthcare and dependent care expenses. Learn the benefits of different FSAs to see if one can help you make more of your budget.
A flexible spending account, or FSA, is a benefit offered by companies allowing employees to set aside pre-tax dollars to help absorb the costs of eligible expenses. FSAs are quickly becoming one of the most sought-after employer-sponsored benefits with an estimated 32.6 million FSA accounts1 active in 2022.
A recent New York Life Group Benefit Solutions survey found only 20% of adults feel very prepared to face an unexpected out-of-pocket medical expense, making an FSA worth considering for most people.
Here’s what you should know if your employer offers an FSA option.
Enrollment: You can register for an FSA during open enrollment season, within 60 days of your hire date, or if you have a qualifying life event as defined by the IRS. This can include changes in your marital situation, a change in your number of dependents, or a change in employment status for you, your spouse, or your dependents.
Contributions: You can decide how much to contribute for the year though there are limits depending on your filing status and account type. For 2024, up to $3,200 can be set aside in a medical FSA2.
Access: You may be issued a debit card linked to your FSA or be required to submit reimbursement claims.
Expiration: FSAs have deadlines, meaning there’s a risk of losing any unused funds. In general, FSA funds need to be used within the calendar year they are set aside although there may be a grace period of up to two and a half months (until no later than March 15) after the calendar year, depending on your employer and plan.
There are two main types of FSAs: healthcare FSAs and dependent care FSAs. Let’s explore each type in more detail to learn what’s covered.
A healthcare FSA helps with certain medical, dental, and vision costs not fully covered by insurance.
Here's what's usually covered:
Co-pays, deductibles, and coinsurance: Using your healthcare FSA can help you cover out-of-pocket expenses that come along with health insurance.
Prescription and over-the-counter medications: Your FSA can pay for antibiotics, over-the-counter pain relievers, and hundreds of other medicines.
Medical supplies: From bandages to crutches, your FSA can cover many essential medical items.
Alternative treatments: Some therapies like acupuncture or chiropractic care may qualify for reimbursement if they are used to treat a known medical condition.
Medical equipment: Specific medical equipment, such as blood pressure monitors or breast pumps, may be eligible for coverage.
Mental health services: Your healthcare FSA could cover therapy sessions and counseling services costs.
Health-related transportation costs: Certain transportation expenses related to medical care, like mileage to and from appointments or parking fees, may be eligible for reimbursement. Standard mileage rates change annually.
Not all expenses are covered by a healthcare FSA such as health club membership dues and items such as cosmetics, deodorants, and mouthwash. Always check before you buy.
While a healthcare FSA takes care of your medical needs, a dependent care FSA (DCFSA) helps to cover your loved ones' expenses, specifically for childcare and dependent care expenses.
Here's what you can typically use it for:
Childcare expenses: This includes daycare, preschool, and before- and after-school care costs for children under the age of 13.
Summer day camp: If your child attends day camp during the summer months, those expenses may be eligible for reimbursement.
Nanny or babysitter fees: Payments made to a caregiver who watches your child(ren) while you work or attend school full time may qualify for reimbursement.
Elder care: Expenses related to caring for elderly dependents, such as adult daycare or in-home care services, may be eligible.
Disabled dependent care: A DCFSA may cover costs associated with caring for a dependent mentally or physically incapable of self-care.
However, like a healthcare FSA, some expenses are not covered by a DCFSA. Tuition fees for kindergarten, field trip fees, and food and clothing expenses are some of the costs typically not eligible for reimbursement.
Know eligible expenses: Not all costs are eligible for reimbursement through an FSA. Familiarize yourself with what qualifies, and consult your FSA provider or employer for a complete list of eligible expenses.
Keep records: It's crucial to keep receipts for all expenses paid with FSA funds whether with a debit card or another form of payment. Documentation will prove helpful in case of an audit or if your claims need to be verified.
Prepare wisely: Carefully estimate your expected healthcare or dependent care expenses when determining your FSA contribution amount during open enrollment to avoid losing unused funds at the end of the plan year.
Different types of FSAs can help you save on healthcare and dependent care expenses with pre-tax dollars. Estimate your family’s needs, keep detailed records, and be aware of eligible expenses to maximize your FSA savings.
Pairing these benefits with proper insurance coverage can further limit out-of-pocket expenses.
Reach out to learn more about personalized guidance for your financial professional.
1 https://dpath.com/right-amount-fsa/
2 IRS: 2024 Flexible Spending Arrangement contribution limit rises by $150 | Internal Revenue Service
This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
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