Open enrollment season is right around the corner. Between September and December many companies start allowing their employees to sign up for benefits for the next year – which often includes health, dental, life and vision insurance; some businesses also offer other options like commuter benefit accounts or consumer directed healthcare accounts. Depending on your company’s plan, you might be wondering – should I sign up for a Flexible Spending Account?
A healthcare Flexible Spending Account (FSA) is an employer-sponsored benefits account. With 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 decide how your annual election will be, up to the annual limit (for 2020, the limit is $2,750). 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 accrued yet. The deductions will continue to come out of each check, but the available balance will be zero. This is known as the uniform coverage rule.
The list of eligible expenses includes:
Here are some examples of non-eligible expenses:
*In March 2020, Congress passed the CARES Act, which allows for OTC medications and menstrual care products as eligible expenses. They were previously not allowed under the Affordable Care Act (ACA).
There is no “one size fits all” answer because each person has different healthcare needs. 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 unspent FSA money.
*The amount went up starting for plans in 2020. From 2020 going forward, the carryover amount is indexed to 20 percent of the maximum annual contribution limit (in increments of $10).
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. Some third party administrators offer a mobile app that allows you to file claims and upload receipts from your mobile device.
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 cut down on their taxes (between 30-40 percent on set aside funds) while putting money away for upcoming 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 healthcare expenses, you may want to put aside an “emergency fund,” particularly if your plan offers carryover. The choice is up to you.
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