For many working Americans, open enrollment season is coming up soon. The open enrollment period is when you have the opportunity to evaluate and sign up for insurance and other benefits, through your employer or through an exchange. Most companies offer a benefits plan which may include health, dental, life and vision insurance; some businesses also offer other options like commuter benefit accounts or consumer directed healthcare accounts. Depending on what benefits your company offers, you may be wondering – should I sign up for a Flexible Spending Account?
A healthcare Flexible Spending Account (FSA) is an employer-sponsored benefits account. Through an FSA, employees set aside money before taxes to pay for qualified out-of-pocket healthcare expenses. There is no health insurance requirement to open an FSA, like there is with a Health Savings Account (HSA).
During open enrollment, you choose how much money to put aside annually, up to the annual limit; currently the limit is $2,700. When the plan year begins (usually January 1), the money is deducted from your paycheck each pay period in equal amounts throughout the year.
On day one of the plan year, you can use your FSA dollars to pay for qualified healthcare expenses for yourself and your dependents. In fact, you can use your entire annual election on the first day, even though the money hasn’t built up in the account yet. The deductions will continue to come out of your check, but the available balance will be zero.
The list of eligible expenses includes:
Here are some examples of non-eligible expenses:
There is no simple answer that applies to every person. The amount you should set aside in your FSA depends on your healthcare needs; some people may need to put more in than others.
In order to figure out how much you need for next year, consider the following:
These terms refer to what happens at the end of the plan year if you have leftover FSA money.
There are a couple of ways to access your FSA money, depending on your employer’s plan.
If your plan offers an FSA debit card, you can use it at pharmacies, doctors’ offices, grocery stores, and more. If you don’t have an FSA card, you’ll have to pay out-of-pocket, then file a reimbursement claim with your benefits administrator.
Be sure to keep all of your receipts and documentation. Even if you have a debit card, your administrator may request the following information:
Is a Flexible Spending Account right for you? An FSA is perfect for people who want to reduce their taxes (between 30-40 percent on set aside funds) while setting aside money for healthcare expenses. Be sure to consider how much you plan on spending next year and how your employer’s plan is set up. Even if you don’t have a lot of medical expenses, you may want to put aside an “emergency fund.” The choice is up to you.