A Flexible Spending Account (FSA) allows you to set aside a portion of your salary before taxes to pay for potential medical expenses and dependent care costs not covered by insurance. For 2015 and 2016, you can set aside $2,550 for health expenses and $5,000 for dependent care (daycare, a nanny, or home health care for an elderly relative).
How can I sign up?
Flexible spending accounts can be set up as salary reduction arrangements, funded with employee contributions from their pre-tax paychecks. The money comes out of your paycheck once a pay period and accumulates on a credit or debit card provided by your FSA company (AmeriFlex or WageWorks, for example). Using these accounts means that the amounts employees contribute to FSAs are not included in taxable compensation for federal tax purposes.
What can I spend my FSA contributions on?
You have to use the money on very specific items, per IRS guidelines. FSA can cover medical expenses that are not paid by insurance (such as co-pays or out-of-network visits) or other health plans. For eligible medical purchases, general rule of thumb begins with two categories — non-Rx items and Rx items. See a list here for more detail. Also note that you can spend the balance in a health care FSA on medical expenses for the entire family, not just the participant.
Is FSA worth it and how much should I contribute?
Try this handy calculator to generate figures for tax savings and average monthly contributions. If you don’t go to the doctors regularly and don’t have serious health issues, it may not worth your time to set up an FSA. However, if you have ongoing health issues, anticipating a baby or medical treatments such as braces, lasik eye surgery, physical therapy and the likes, FSA will put some money back in your pocket.