Flexible Spending Accounts (FSAs) are employer-sponsored benefit programs that allow employees to set aside pre-tax dollars from their salary to pay for qualified expenses. FSAs offer a tax-advantaged way for employees to pay for certain out-of-pocket expenses, such as healthcare and dependent care expenses.
One of the most significant benefits of an FSA is that they can be used to pay for a wide range of expenses. Healthcare FSAs, for example, can be used to pay for deductibles, copayments, prescriptions, and other medical expenses that are not covered by insurance. Dependent care FSAs can be used to pay for the cost of childcare, after-school programs, and other dependent care expenses. Some FSAs even allow you to use the funds for transportation and parking expenses related to healthcare appointments.
One of the main limitations of FSAs is that they are use-it-or-lose-it accounts. This means that any funds you contribute to an FSA during the plan year must be used by the end of the year or forfeited. However, some employers offer a grace period or carryover provision, which allows you to use any unused funds from the previous year for a set period of time or carry over a limited amount of unused funds to the next plan year.
Another limitation of FSAs is that they are subject to annual contribution limits. For 2022, the contribution limit for healthcare FSAs is $2,750, while the contribution limit for dependent care FSAs is $5,000 per household. It’s important to keep these limits in mind when planning your contributions.
To maximize your FSA benefits, it’s important to carefully plan your contributions and expenses. Here are a few tips to help you get the most out of your FSA:
Estimate your expenses: Before enrolling in an FSA, take some time to estimate your expenses for the upcoming year. This will help you determine how much you should contribute to your FSA.
Take advantage of employer contributions: Some employers offer FSA matching contributions, which can help you save even more money on your qualified expenses.
Use your FSA funds wisely: Be sure to use your FSA funds before the deadline, and try to use them for eligible expenses that you know you’ll incur over the course of the year.
Keep good records: Keep track of your FSA expenses and receipts in case you need to submit documentation for reimbursement or tax purposes.