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Managers often receive questions from their employees about the various benefits and benefit plans available to them. The flexible spending account, or FSA, seems to be one of the benefits that employees are most confused about. Here are some of the most common questions managers get asked about flexible spending accounts.
What is a flexible spending account?
A flexible spending account (FSA) is a special account that allows you to save pre-tax income for eligible medical expenses. Since the money deposited into your flexible spending account is pre-tax, you won’t have to pay income tax on it so long as the funds are used for eligible expenses. When it comes time to use the funds, some flexible spending accounts provide a debit card for use on eligible purchases. Others require the account holder to submit claim forms and receipts for reimbursement.
Is a flexible spending account right for me?
Flexible spending accounts aren’t for everyone. Someone who is in very good health and doesn’t expect many medical expenses typically won’t enjoy much benefit from a flexible spending account. Whereas, if an individual or family knows they will have to pay numerous out-of-pocket medical expenses, the benefit they will enjoy will be in the tax savings provided by the account.
What are eligible expenses for a flexible spending account?
Flexible spending accounts will reimburse most expenses directly related to the prevention, diagnosis, or treatment of a medical condition. Some examples of covered expenses are:
– Prescription medications
– Medical co-pays
– Mileage for travel to/from medical appointments
– Some over-the-counter (OTC) medications
– Hand sanitizing lotion
– First aid supplies
Before signing up for a specific flexible spending account, an individual should familiarize themselves with the account provider’s list of covered expenses.
How long do I have to spend my flexible spending account funds?
Any funds deposited into a flexible spending account must be spent by the end of the calendar year, or else they will be forfeited. That is why it is extremely important to properly estimate medical expenses for the year. It is always better to put less money into a flexible spending account than to lose money at the end of the year.
If someone finds themselves in the situation where they still have money leftover at the end of the year, that is a good time to stock up on household medical supplies.
Is dependent care considered an eligible flexible spending account expense?
Flexible spending accounts are meant to cover medical expenses. Thus, dependent care is not covered under a standard flexible spending account. However, there is an account called a dependent care flexible spending account which works in a similar manner to a flexible spending account. If you have a child that requires day care or babysitting while you and/or your spouse are working, attending school, or job hunting, a dependent care flexible spending account just might be right for you.
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