If you've never considered opening a flexible spending account, you're most likely leaving money—your pretax dollars, specifically—on the proverbial table. FSAs allow you to save money by deducting pretax dollars from your pay for certain expenses related to health care or to the care of children, a disabled spouse, or dependent adults.
Health care flexible spending accounts use pretax earnings for eligible medical, dental, and vision costs and save an average of 30 percent on eligible expenses, according to WageWorks. Such eligible costs are defined by the IRS and include co-pays, deductibles, prescription drugs, over-the-counter medicines prescribed by a doctor, eyeglasses, and contact lenses, among other things (WageWorks has a full list of eligible expenses).
Setting up a health care FSA is voluntary. If you opt to use one, you decide how much—up to $2,600 annually, beginning in 2018—you'd like to contribute to your account. That money is funded up front into your FSA account, which you spend down over the year. The payroll deductions that fund the account, however, are taken from your pay in even increments over the year.
If you overfund your account, $500 of any unused money can be rolled over to the following year (FSAs are designed to be use-it-or-lose-it benefits, so it pays to carefully consider your expected expenses before funding your account).
WageWorks offers you some flexibility on how you access your funds. You can opt for a WageWorks reimbursement card, which works like any debit card—you swipe it at the pharmacy or at your doctor's office to pay directly. You can take part in the "Pay My Provider" automatic bill pay system through which WageWorks sends a check from your account to your provider. Finally, you can opt for "Pay Me Back," which allows you to pay the provider directly, complete a form, and get reimbursed.
Dependent care FSAs deal solely with covering the cost of child care, elder care, or the care of a physically or mentally disabled spouse. Like health care FSAs, though, they allow you to deduct pretax money—up to $5,000 per year—from your pay and apply it to the cost of child care or other dependent care.
Eligible costs go beyond just day care for a child or older dependent adult. Preschool, summer day camps, nannies and au pairs, and before- or after-school programs are also covered, for example, as are transportation costs to and from eligible care.
There are a few limitations you should know, though. Dependent care FSAs are aimed at offsetting costs parents or those with adult dependents rack up while working or going to school, so married couples must both be either working or attending school full time for at least five months of the calendar year. And the $5,000 cap is the total amount your family can contribute.
It's also important to note whose care the account can be used to cover. Child care costs are eligible only if the child is under the age of 13, and the IRS has strict rules about who qualifies as a dependent (see WageWorks' list of eligible dependents for more information).
Unlike a health care FSA, "the dependent care FSA is not loaded up front," says JHU benefits representative Danielle Altmeyer. "You use it as you accrue it." To get reimbursed for dependent care costs, you can use WageWorks' Pay Me Back option, or you can use the Pay My Provider option to have payments sent directly to your dependent care provider.
Whether you're opting for a health care FSA or a dependent care FSA—or both—don't forget to re-enroll each year during Annual Enrollment. "These are active enrollments," Altmeyer says. "Every year you have to go in every year and actively select it."
Who's eligible: Full-time or bargaining unit members and their eligible dependents, as defined under federal tax law.
When do I sign up? At hire, during Annual Enrollment (Oct. 20 to Nov. 7, 2017), or when you experience a qualified life event.
How do I pay for it? Payroll deduction.
More information: JHU Health and Welfare Handbook, pages 115 to 128.
Terms to Know
Flexible Spending Account (FSA): A special account funded with pretax money and used for certain eligible expenses.
Health care FSA: A special account funded with pretax money and used for certain out-of-pocket health care costs.
Dependent care FSA: A special account funded with pretax money and used to pay for child care, elder care, or the care of a disabled spouse or relative in order for the account holder to work or attend school.
WageWorks: The benefits administrator for JHU's FSAs and other programs.