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What is a Flexible Spending Account (FSA)?
Flexible Spending Accounts (FSAs) were created by federal legislation and are designed to help you save money by paying for qualified medical or dependent care expenses on a tax-free basis. An FSA enables you to set aside pre-tax funds from each paycheck. You may use these funds to pay for dependent care expenses, or medical expenses not paid by your health benefits.
What medical expenses can I pay with FSA funds?
Funds in a medical FSA can be used to pay qualified health care expenses that are not covered by your health plan or other insurance. Qualified health care expenses are fully defined in Section 213(d) of the Internal Revenue Code. They may include, but are not limited to wellness or prescription drug copayments, eyeglasses, prescription contacts, dental expenses and LASIK surgery.
What expenses are not covered?
Insurance premium payments are not eligible. Cosmetic expenses such as teeth whitening, liposuction, spider vein removal and many over the counter purchases are not eligible. Weight loss medication or acne medicine is not covered unless a letter of medical necessity is provided from the prescribing physician. These are common examples, not a complete list, of items not eligible for payment with FSA funds.
How does an FSA help me save money?
Because you set aside FSA funds from your wages before state, federal or FICA taxes are deducted, you actually lower your taxable income.
Can I claim medical expenses on my annual tax return?
You cannot claim any expenses reimbursed through an FSA on your tax returns. To itemize medical expenses on your tax return, you must meet the standard deduction set by the IRS on eligible expenses, which is unlikely. Therefore, an FSA may be a better option for you to save money.
What about the “use it or lose it” rule?
Because federal legislation does not allow the FSA funds to be carried over to the following plan year, you forfeit any funds remaining in the account at the end of each plan year. However with careful planning, you should not lose any money. Check with your employer to find out the deadline for submitting claims after the plan year ends.
How much can I be reimbursed from my amount at any given time?
With a medical FSA, you can claim up to your total annual election at any time during the plan year. If you elect $1,200 for the year, but have only deposited $200, you will be reimbursed the full $1,200 if you have with proper documentation for eligible expenses. With a dependent care account, you only can be reimbursed up to the amount that is available in your account at that time.
What expenses may be paid with my dependent care FSA?
A dependent care FSA can be used to reimburse your qualified childcare or adult care expenses. These include expenses paid for the care of eligible dependents while you work. Eligible dependents include children under age 13 who reside with you for more than half of the year, disabled spouses or parents for whom you contribute more than 50 percent of their expenses. To qualify for a dependent care FSA if you are married, both you and your spouse must work or your spouse must be disabled or a full-time student.
How do I submit a claim?
Hardcopy Claim Submission: For all expenses, you must submit a copy of your Explanation of Benefits (EOB) or itemized receipts, along with an FSA Claim Form. Receipts must include the date of service, amount paid, and name of the item purchased or service received (reference sample receipt on website). Claim forms are available in your company’s Human Resources department and on your health plan’s Web site.
Whom do I contact for more information?
If you have questions, call your health plan’s FSA Administration department toll-free at the Customer Service phone number listed on the back of your ID card or FSA Debit Card, Monday through Friday 8 am - 5 pm EST.
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