Flex Your Wallet with Flexible Spending Accounts (FSA)

Many people now have an option through their employer to use Flexible Spending accounts. If you have the option and you aren’t using it, check it out. If you don’t have one available, ask your employer about adding one. These programs are often done as a means to cheaply extend additional benefits to employees without companies needing to front large sums of money.

If used properly, these plans can save hundreds of dollars a year for employees - not off the expenses themselves, but off of the tax dollars that would have otherwise been spent. Here’s how they work:

As an employee, you pick a certain dollar amount each year that you think you will spend on qualified expenses - since Medical Flexible Spending Accounts are the most common, we will use this as our example. Most of the time, if you go to the doctor once or twice a year, you will have a copay.

Assume that copay is twenty dollars, you can multiply that by the number of expected visits for a total of forty dollars.

Now, figure out if you are going to the dentist on a yearly basis. The same rule applies. Going through all of the nickel-and-dime type expenses will likely total over two or three hundred dollars annually. By using a flexible spending account, you will have that money deducted from your check in equal amounts throughout the year before taxes are taken. This money then sits in the account until you submit claims to be reimbursed. The key to these calculations is to be close to accurate. This is to ensure that all of the money in your account is used. Otherwise, it will be lost at the end of the year. Often, for medical FSAs, a trip to the pharmacy to purchase over the counter medical supplies will use up any leftover balance.

Once the claims are filed, if the paperwork is in order, reimbursement come quickly in the form of a check or direct deposit that you can then use how ever you want - you will not be taxed on that money.

Flexible Spending Accounts have been around a long time. They are a means for employers to help reduce health care expenses for employees. Of course, medical expenses are usually tax deductible at the end of the year anyway, which is the same as a flexible spending account. The difference for most people comes during tax time. Since most people do not keep receipts throughout the year, they will take the standard deduction when filing taxes and lose the deduction for their medical expenses.

Flexible Spending Accounts handle this health care issue by requiring proof when claims are submitted. There is less likelihood that you will lose the proof if you can file the claim quickly. Also, by using the FSA, you will still be able to file taxes and use the standard deduction.

FSAs are also available for other types of expenses. I use one for parking expenses. Since I take the commuter rail to work, these expenses are also handled via an FSA. This ensures that I am able to pay for parking and commuting with pre-tax dollars which lets me keep more of those hard-earned dollars and give less to uncle sam each week since my taxable income is reduced.