Flexible Spending Account is a special type of savings account which allows you as an employee to put to set aside a part of your regular earnings so that you can use the money for qualified expenses. Having in mind that the flexible spending account is tax-free you will save the money you’d normally pay on taxes.
- How does an FSA work?
To begin with all the fund that go into your FSA will be deducted from your earnings before they hit the payroll taxes. Usually, in this way you’ll save around 30% on taxes. You’d need to submit a claim through your employer to the FSA, so you can make use of your flexible spending account. You can enroll every year during the Open Season enrollments. Furthermore, the employer itself can decide to contribute to your flexible spending account. Having in mind that this is not an obligation to the employer if such thing happens, their contribution won’t change at all in terms how much can you contribute to your own account.
However, it is not an obligation for your employer to make contributions to your flexible spending account. The money on your FSA have a yearlong grace period, meaning that every cent that is still in the account will be lost at the end of this period. Many employers can offer an extra 2/3 months, for their employees’ benefit. However, this would be an exception and not a rule, as the employers are not required of anything.
- FSA’s limitations
There is a limited amount of money you can put in your flexible spending account, through the years tis amount has changed. Although, the employee and the employer would normally determinate the exact amount of money to the FSA. There is a legal limit which for 2020 is $2750 per employee.
- Who can benefit from my FSA funds?
For someone to benefit from a FSA fund, they must qualify as an eligible dependent. This would include your spouse, any children not older than 26, or a qualifying relative. In order to include your spouse’s medical bills, you’d need to be married at the time you paid the bills or when he received them.
- How can I use my FSA?
The really nice thing about the flexible spending account is that you can actually save while buying things you really need. The list of purchase items covered by the FSA goes from prescription medicaments and medical equipment, feminine hygiene products, birth control and contraceptives to eye exams and skin care.
The right way to decide of you really need a flexible spending account is to take a look at your health and your close ones. Of course, if you can’t think of any ongoing medical needs or even an upcoming one, then there is a great chance you don’t really need a flexible spending account. However, sometimes it’s better to be safe than sorry because many times we can’t plan nor expect some health problems and yet they some.