What is an FSA?

Answer:
FSA stands for Flexible Spending Account. FSAs

were authorized under Section 125 of the Internal Revenue Code. These accounts allow employees to set aside a portion of their salary using pre-tax dollars for specific expenses that are not covered under the employer’s insurance plan or contract. Because the money is not initially taxed, the employees benefit by being able to save on taxes when paying for medical expenses.

Some of the medical expenses that qualify for FSA spending include: exams, deductibles, co-pays, eyewear, and dental expenses. In addition, some FSAs allow you to set aside money for dependent care such as childcare, after-school care, and summer day camp for dependents under age 13.

However, there’s a catch with FSAs. At the end of the calendar year, any money left in the account is forfeited. It’s a “use it or lose it” type of account. Because of this provision, it’s vital that you plan carefully or your tax savings could be washed out by forfeiting unspent funds.

For example, if you know that you will be paying $2000 for the year in out of pocket expenses and have opted to contribute $2000 into the FSA, make sure that you file claims for the entire amount before the end of the year. If you only claim $1500, the remaining $500 does not roll over. Instead, it’s gone for good.


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