What is Flexible Spending Accounts (FSA)?
A Flexible Spending Account (also known as a Cafeteria Plan or Flex Plan) is a benefit offered by many employers that allows employees to pay for eligible medical procedures and products on a pre-tax basis.
Below are a few key benefits of contributing to a Flexible Spending Account:
- • Using the benefits can save you hundreds of dollars each year.
- • FSA lowers your taxable income.
- • FSA decreases your income taxes.
How Do You Get Started?
First, you will need to inform your employer of how much money you would like to contribute to the account for that year. Generally speaking, there is one opportunity to enroll each year, unless there is a “family status change” such as marriage, divorce, or the birth of a child. That amount is then deducted from each of your paychecks in equal installments throughout the year and set aside into a separate account by your employer. Each time you incur a medical expense not covered by your medical insurance carrier, you should submit your Explanation of Benefits (from the insurance carrier) or the invoice from the provider along with proof of payment to your Plan Administrator. From there, a reimbursement check for that amount will be sent to the employee.
Below are a few expenses eligible under a Flexible Spending Account:
- • Laser Vision Correction
- • Most elective procedures
- • Eyeglasses and Contact Lenses
- • Prescription co-payments
- • Deductibles
Below is an example of the financial benefit that can be realized by utilizing a Flexible Spending Account:
|With FSA||Without FSA|
|LASIK funds in your FSA:||$2,500.00||$0.00|
|Approximate Federal Withholding:||$10,798.75||$11,423.75|
Approximate Tax Savings: $816.25 (33%!)
* One important factor to consider is the amount to allocate to your FSA each year. Be careful not to contribute an amount you will not fully use since, by law, you will not receive those funds back at the end of the year.