“FSA” stands for Flexible Spending Account. Many companies offer FSAs as part of their benefit package. And if you’re eligible but not using one, you could be missing out on a way to reduce your health care costs.
An FSA lets you set aside pre-tax dollars from your paycheck to pay for health care costs that are not covered by regular health insurance. As well as paying for deductibles and co-pays, you can use your FSA dollars for a range of other health care expenses. These include such things as eyeglasses and dental work.
Dollars you put into your FSA don’t count as taxable income, so you save the tax you would have paid on those earnings. Sometimes there’s a secondary benefit. Because your income is lower, you might find yourself in a lower tax bracket or eligible for tax breaks that phase out at certain income levels.
FSAs have one drawback. It’s called “use it or lose it.” You’ll forfeit any unspent money in your FSA at the end of each plan year. Some companies have a 12-month plan year, usually ending on December 31. Other plans allow you an extra 2Â½ months beyond year-end to spend the prior year’s balance. With a little planning, you can use up your dollars without much problem.
If your company offers an FSA, it’s worth looking into. Check with your benefit coordinator to see what items are covered and to find the plan limits. Starting in 2013, the amount that can be contributed to a health FSA is limited to $2,500 per year (indexed annually for inflation).
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