Flexible spending accounts offer you a tax-free way to pay for everyday services or products you need. This could mean a 15 to 30 percent savings, depending on your income and tax level. There are two types of FSAs from which you can benefit:
Health care FSA
You can enroll in a health care FSA to use tax-free dollars to pay for eligible medical expenses, including:
- Medical, dental, and vision copays and coinsurance
- Prescription or over-the-counter drugs your doctor prescribes
- Eyeglasses, contact lenses, and/or Lasik surgery
If enrolled in a health care FSA, you are eligible to contribute up to $2,550 in tax-free dollars each year. Up to $500 in unused contributions made during 2016 can be rolled over into the 2017 plan year as additional funds.
Dependent care FSA
If you have dependents, you can also enroll in a dependent care FSA and use tax-free dollars to save money on eligible out-of-pocket expenses, including:
- Day care
- Before and after school care
- Adult day care
You can contribute up to $5,000 tax-free dollars annually to pay for eligible expenses. (If you and your spouse file taxes separately, each of you is limited to a maximum of $2,500 annually.) Dependent care FSA dollars do not roll over from year to year; any money not used by the annual deadline is forfeited.
Thinking about enrolling in an FSA, either for tax-free health care or dependent care spending? Here are a few things to keep in mind:
- You contribute funds through pretax payroll deductions. As you incur eligible expenses, you may be reimbursed from your account.
- If you are currently enrolled in an FSA and would like to continue contributions for 2017, you must re-enroll during the enrollment period. Your elections will not carry over automatically.
- You cannot use health care FSA funds for dependent care FSA expenses, or vice versa.
- The dependent care FSA is for day care expenses only. To save and be reimbursed for a dependent's health care expenses, you need to contribute to the health care FSA.
- You must estimate your health care and dependent care expenses carefully. Dependent care FSA money that is not used is forfeited. Participants in the health care FSA may carry over up to $500 to be used for eligible expenses the following year; any amount over $500 not used for claims incurred will be forfeited. (The $500 carried over is in addition to the $2,550 one can contribute each year.)
For the IRS list of eligible expenses for health care and dependent care FSAs, go to the Benefits website.
Posted in Benefits+Perks, Health+Well-Being
Tagged hr newswire